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PETITIONER: M/S NATHPA JHAKRI JT.  VENTURE

       Vs.

RESPONDENT: STATE OF HIMACHAL PRADESH & ORS.

DATE OF JUDGMENT:       14/03/2000

BENCH: S.N.Phukan, S.R.Babu

JUDGMENT:

     RAJENDRA BABU, J.  :

     CIVIL APPEAL NO.  8468 OF 1997

     The  appellant  before  us   called  in  question  the validity  of  Section 12-A of the Himachal  Pradesh  General Sales  Tax Act, 1968 [hereinafter referred as the Act] and Rule  31-A  of the Himachal Pradesh General Sales Tax  Rules [for  short  the Rules] before the High Court of  Himachal Pradesh.   The said provisions provided for deduction of  an amount  from the bills or invoices of the works  contractors purporting  to  be  tax payable towards  transfer  of  goods involved  in  works contract.  The High Court took the  view that  the  relevant  amount is  the  valuable  consideration payable  for  the transfer of property in goods and not  the entire  value or consideration for the entire works contract and  what was directed to be deducted is only an amount  not exceeding 4 per cent as may be prescribed purporting to be a part  or  full of the tax payable on such sales which  would necessarily  mean tax payable under the charging  provisions of  the  Act  The charging provision was  not  in  challenge before  the High Court.  The High Court held that the  State Legislature  has  not  exceeded its competence  in  enacting Section 12-A of the Act.  As regards Rule 31-A of the Rules, the  High Court stated that the crucial part of the  Section is  repeated  in the Rule and if all the sub-rules are  read together  there  could be no doubt that the expression  all payments  being  made  in  respect  of  all  works  contract executed  means and refers only to the payments on  account of  valuable  consideration  payable  for  the  transfer  of property  in  goods and not other payments.  The High  Court further  noticed  that  the Rule also does  not  enable  any person  to deduct any amount other than what is contemplated by  the Section and, therefore, it does not suffer from  any invalidity.   On  that basis, the High Court  dismissed  the writ petitions.

     As  was  contended  before  the   High  Court,  it  is submitted  on  behalf  of the appellant that  provision  for compulsory  deduction from payment to works contractor  does not provide for exclusion of cases where the transaction may not  amount  to a sale at all and there is no  mechanism  by which  the contractor can claim that a transaction does  not amount  to sale so that no deductions may be made under  the

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aforesaid provision.  It is also submitted that the recovery is  on events which do not attract tax at all, for  example, Section  6  of  the  Act, which  is  the  charging  Section, excludes  from taxable turn over, the turn over of a  dealer on  sales to any undertaking supplying electrical energy  to the  public  under a licence or sanction granted  under  the relevant  law  of goods for use by it in the  generation  or distribution  of such energy subject to production of a duly signed  form by an authorised officer in that regard and the Rule  provides  for  deduction of 4 per cent amount  on  all payments in similar terms to deduct an amount equal to 4 per cent.  The said provisions in Section 12-A and Rule 31-A are identical  to  those  considered  by  this  Court  in  Steel Authority  of  India Ltd.  v.  State of Orissa & Ors.   etc. etc.,  2000  (2) SCALE 98.  The relevant portion of  Section 13-AA  of the Orissa Sales Tax Act considered by this  Court in  Steel Authority of India (supra) and Section 12-A of the Act is as under :-

     13-AA.   Deduction of tax at source from the  payment to 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 (hereinafter  referred to in this section as the  deducting authority)  for  carrying  out  any  works  contract  which involved  transfer  of property in goods, in pursuance of  a contract  between the contractor and (a) Central  Government or  any State Government, or (b) Any local authority, or (c) Any  authority  or  Corporation established by  or  under  a statute, or (d) Any Company incorporated under the Companies Act,  1956  (1  of  1956) including  any  State  or  Central Government  undertaking, 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 of 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 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.

     12-A.    Notwithstanding  anything  to  the   contrary contained  in Section 13, every person making any payment or discharge   of   any  liability  on  account   of   valuable consideration payable for the transfer of property in goods, whether  as  goods  or in some other form, involved  in  the execution  of  works  contract shall deduct  an  amount  not exceeding  four percentum, as may be prescribed,  purporting to  be a part or full of the tax payable on such sales, from the  bills  or  invoices raised by the works  contractor  as payable by the person:

     Provided that no such payment or discharge of any bill raised  by  the  works  contractor  shall  be  made  without deduction:  Provided further that if the State Government is satisfied  that it is necessary to do so in the interest  of the  State  revenue, it may notify the names/posts  of  such persons  who  shall  be  competent   persons  to  make  such deductions.

     Rule 31-A of the Rules reads as under :-

     Rule  31-A.  Deduction of tax from the bills/invoices of  work contractor:  (1) For the purpose of Section 12-A of

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the  Act, every person in a department of any Government,  a Corporation, Government Undertaking, a Co-operative Society, a local body, a Trust or a Private or Public Limited Company or  any other concern responsible for making any payment  or discharge   of   any  liability  on  account   of   valuable consideration  payable for the transfer of property in goods whether  as  goods  or in some other form  involved  in  the execution  of  works contract or for carrying out any  works shall at the time of:-

     (i) Payment thereof in cash or by issue of a cheque or bank draft or any other mode;  or (ii) credit of such sum to the  account of the works contractor;  or (iii)  discharging liability  on account of the said valuable consideration  to the  works  contractor,  deduct  an   amount  equal  to  two percentum of such sums towards the tax under Section 12-A of the Act.

     (2)  The  deduction under sub-rule (1) shall  be  made from  all  payments  being  made in  respect  of  all  works contract executed, whether in part or in full.

     However,  Shri B.  Dutta, the learned senior  advocate appearing  for the State, very valiantly emboldened  himself to submit that he can distinguish the decision of this Court in Steel Authority of India case (supra) and stated that the provisions of Section 13-AA and Section 12-A are not in pari materia.   A bare perusal of the two provisions will make it clear  that  in either provision there is an  obligation  to deduct from transactions relating to works contract on bills or  invoices  raised  by the work contractor an  amount  not exceeding  4  per  cent 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 involved in the execution of the work 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 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 is no solace, as noticed in  Bhawani  Cotton Mills  Ltd.   v.  State of Punjab & Anr., 1967 (3) SCR  577. 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 upto 4 per cent from the sum payable to the works contractor irrespective  whether  ultimately the 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.

     The learned counsel drew our attention to the decision in  a  case  arising under the Bihar Sales Tax Act  and  the earlier decision under the Orissa Sales Tax Act, but in view of  the  decision of this Court in Steel Authority of  India (supra)  it  is  wholly unnecessary to refer  to  the  same. Following  the decision in Steel Authority of India  (supra) case,  we allow this appeal and set aside the order made  by the  High  Court by allowing the writ petition and  quashing the  aforesaid provisions as being beyond the purview of the

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Himichal Pradesh State Legislature.  Such amount as has been collected  from  the appellant under provisions  of  Section 12-A  read with Rule 31-A shall forthwith be refunded by the State.   If  any  amount  has been  deposited  in  any  Bank pursuant  to orders passed by this Court or the High  Court, it shall be refunded to the appellant with interest accruing thereon.   In the circumstances of the case, there shall  be no orders as to costs.

     CIVIL  APPEALS NOS.  8470/1997, 8471/1997,  8469/1997, 8472/1997 AND WRIT PETITION (CIVIL) NO.  552/1999

     Following  the judgment just delivered in CIVIL APPEAL NO.   8468  OF  1997, these appeals and  writ  petition  are allowed  and  the orders under appeal are set  aside.   Such amount  as has been collected from the appellants under  the provisions  of  Section 12-A shall forthwith be refunded  by the  State.   If any amount has been deposited  pursuant  to orders  passed  by  this Court or the High Court,  the  same shall  be refunded to the appellants with interest  accruing thereon.  No orders as to costs.