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Judgment
S. Roy, J.—In all these cases, besides other reliefs, prayer was made for declaring the Constitution (46th Amendment) Act, 1982 by which Clause (29A) was introduced in Article 366 of the Constitution, as illegal, unconstitutional and void. Consequential prayer was made for declaring that" the amendment in the Bihar Finance Act, 1981 in so far as it seeks to impose sales tax on works-contract was illegal and void. In the judgment of the, Supreme Court in Builders Association of India and Ors. v. Union of India and Ors. 73 (1989) S.T.C. 370 : 1989 PLJR (SC) 31 these points were no more available.
The points which survived were the validity of Rule 13A which was introduced in the Bihar Sales Tax Rules by Notification dated 8th October, 1986 and how far the Petitioners were liable to pay sales tax on works-contract entered into by and between them and the persons in whose benefit building, factory etc. were being constructed (hereinafter to be referred to as the employer).
The Petitioners, are the Association of contractors, its members, and Other contractors The contractors entered into contracts known as works-contract with different employers for execution of various jobs. Consequent to the amendment in the Bihar Finance Act, 1981 (the Act) and Bihar Sales Tax Rules, 1983, the contractors whose annual gross turnover was Rs. 25.000/-or above were directed to get themselves registered under the Act. Direction was issued by the State Government to deduct sales tax at source from the bills of the contractors on they total value of the contract.
The submissions made on behalf of the Petitioners are as follows:
In view of the judgment of the Supreme Court in Builders Association (supra) the contractors shall be liable to pay tax only in case there was sale of goods while executing a works contract and no tax was payable on the value of the labour involved in its execution. Rule 13A was ultra vires as it provides for deduction of a certain percentage of cost incurred on labour and not the whole of the amount so incurred. The Respondents were bound to give effect to the provisions of Central Sales Taj. Act, 1956 (C.S.T. Act) if the goods used in execution of the job were declared articles and also if the sale took place during the course of inter State trade. In works-contract, the contractors shall be liable to pay tax if the goods for execution of the works-contract, viz : cement bricks, iron and steel are supplied by them, but no tax shall be payable if these goods are supper lied by the employer and are used for execution of the job.
These submissions were met on bebalf of the State as follows:
It was conceded that in view of the Judgment the Supreme Court in Builders Association, no sales tax was payable on labour. But Rule 13A did not speak about labour alone and, therefore it cannot be struck down as a whole. The contractors are liable to pay sales tax on such goods which are supplied for value by the employers, viz : cement, bricks, iron steel etc. and used in execution of the works contract. Reliance was placed in M/s. N.M. Goel and Co. Vs. Sales Tax Officer, Rajnandgaon and another, .
These were replied on behalf of the Petitioners by submitting that Rule 13A speaks about labour alone. The ratio decidendi in Goel & Co. (supra) has no application to these cases as that case it was question of payment of entry tax. Further, ratio in Goel & Co. was not applicable to these cases, because it was conceded on behalf of the States in Builders Association that if goods had been supplied by the person for whose benefit, building, factory, etc. were being constructed for the purpose of such construction the value of those goods would not be included in the taxable turnover and the Supreme Court in that case did not adjudicate on this question.
It is settled law that Stale sales tax law must take notice of Article 286 of the Constitution, which prohibits the State to impose tax, inter alia, on sale or purchase of goods where such sale or purchase takes place out-side the State and restricts the quantum of tax on sale or purchase of goods declared under the C.S.T. Act to be of special importance in inter-State trade or commerce. This will apply to works-contracts also. In view of this, it must be held that while assessing tax on the taxable turn-over of a contractor who has executed works-contract the assessing officer, for the purpose of assessment, must take notice of the fact whether any goods used in execution of the works-contract is a declared goods under C.S.T. Act. If the finding is in the affirmative, he must take further notice of Section 15 of C.S.T. Act in passing final order.
Rule 13A of the Bihar Sales Tax Rules, reads as follows:
13A. Deduction in case of works contract on account of labour charge. Deduction under Sub-clause (i) of clause (a) of Sub-section (1) of Section 21 on account of labour charges in case of works contract from gross turnover shall be equal to the following percentage in respect of different types of works contract.
Percentage Per cent,
(1)(a) Earthwork in all types of soil and in all works on canals, road, embankments, small dams etc. by manual labour; and exclusive labour rate contracts. 100
(b) Earthwork in all types of soil in all works on canals, roads, embankments, dams etc. by machines. 20
(c) Construction of Earth dams with earth moving machines. 25
(2)(a) Construction of masonry/con crete dams, barrages, bridges of more than 15 meters length, water towers and P.H.E.D. installations and lift irrigation installations etc. 30
(b) Stone masonry in dams and other such works. 35
(3) Construction of canal structures, bridges upto 15 meters length, all types of buildings and lining of canals. 30
(4)(a) Construction of pucca roads (excluding earthwork). 15
(b) Construction of pucca reads (including earth-work in formation of new roads). 25
(5) River training and flood protection works involving boul der and brick pitching (exclugding earthwork), 40
(6) In the case of electrical contracts. 20
(7) In the case of a structural cqntract. 30
(8) In the case of a sanitary contract. 33-1/3
(9) In the case of retreading contracts. 50
(10) In the case of textile dyeing and printing works contracts. 50
(11) In the case of photography and printing contract. 30
(12) In the case of sculptural contract or contracts relating to Article 70
(13) In the case of refrigeration, air conditioning or other machinery, rolling shutters, cranes installation contracts. 15
(14) In the case of other contracts. 30
Thus it will be noticed that the rule provides that for different types of works in works contract, different percentage of labour shall be presumed to have been used and amount spent to that extent shall be deducted from the gross turn-over. Tax is payable on labour charges under this rule. Under this rule even if the contractor might have spent more on labour charges than the prescribed percentage, stated in the rule, the contractor shall not be entitled to claim deduction beyond what has been provided. In other words, tax is levied on labour charge. Neither sale nor purchase of any goods is involved, when a contractor spends on account of labour. "Labour" cannot be said to be a goods even within the definition of "goods" in the Act. From the gross turnover, the total amount spent by the contractor as labour charges in execution of the works-contract shall have to be excluded. Rule 13A cannot be sustained and must held to be ultra vires.
In view of the judgment in Builders Association, the parties agreed that a contractor is liable to pay tax if in execution of works contract, he supplied, goods, e.g. bricks, cement etc. which were used for the completion of the, contract and employer paid price of it.
On behalf of the Petitioners our attention was drawn to the following submission made on behalf of the States in Builders Association, (supra):
...If any goods had been supplied by the person for whose benefit a building, factory or bridge was being constructed for the purpose of such construction the value of those goods would not be included in the taxable turnover....
In view of this, it was submitted that as the State had conceded before the Supreme Court "that if any goods had been supplied by the employer for the purpose of construction of building, factory, etc. the value of those goods would not be included in the taxable turnover the Respondents cannot now be heard to argue in these cases contrary to the submissions quoted above. It is true that in Builders Association, the Supreme Court has not expressed any opinion whether the aforesaid submission made on behalf of the State embodied the correct legal position. As because in an earlier case concession was made on behalf of a party on a legal question that party cannot be stop, ped from taking a different position in another proceeding. We are therefore, to decide Whether in a case where there is an agreement between the contractor who is executing the works contract and the employer that the employer -will supply some goods, viz. cement, bricks iron and steel etc. which shall be used for com pletion of the job and the price of which shall. be recovered from the contractor, the amount. so paid will not be included in the taxable turnover.
From the judgment in Goel & Co. (supra) it appears that the Company was a building contractor and was registered as dealer under the Madhya Pradesh General Sales Tax Act. The tender of the Company for construction of Godown and ancilliary building was accepted by the Central Public Works Department (C. P.W.D). In the tender so submitted by the Company, the prices of the materials to be used for construction including cost of Iron, steel and cement were included. The C. P.W. D. however had agreed to supply from its stores iron, steel and cement for construction work and to deduct the prices of materials so supplied and consumed in the construction from the final bill of the Company. The Company was assessed to. purchase tax under the Madhya Pradesh General Sales Tax Act and was as such liable for payment of entry tax for iron, steel and cement, the entry for the same having been effected at the instance of the Company because it had ultimately used the materials for the construction work. Under the Madhya Pradesh General Sales Tax Act, it was assessed also to entry tax. The Company challenged the assessmet of purchase tax and also assessment of entry tax and the matter came to the Supreme Court.
This case was decided earlier than the Builders Association. But the same was not brought to the notice of the Bench hearing the Builders -Association case. Some observations made in Goel & Co (supra) are no doubt in conflict with the judgment of Builders Association as in the former the effect of 46th Amendment to the Constitution was not considered, viz. observation made in Goel & Co. that for building materials supplied by the contractor in works contract there is no question of sale or purchase, is directly in conflict with the judgment of Builders Association and that no more can be held to be a good law. However, in Goel & Co. it was held that if there is an agreement between the parties by which the employer undertakes to supply materials which are to be consumed for execution of the work-contract and the price of which the contractor is made liable to pay, the contractor shall be deemed to have sold the goods to the employed and the contractor is liable to pay tax under the Sales Tax Act. In view of this legal position, notwithstanding the submission made on behalf of the States in Builders Association, it must be held that if there is an agreement between the contractor and the employer under which the employer agrees to supply building materials to the contractor to be used in the work, and the contractor is made liable to pay the price of those materials, there is sale of goods by the contractor and he shall be liable to pay tax on such sale. The legal position now is when there is a transfer of property in goods by the contractor in execution of works contract, sales tax law is attracted.
In none of the cases assessment has been completed. The assessing authority in all the cases of works-contract shall proceed with assessment of the contractors, who have executed works contract of the annual gross turnover of Rs. 25,000/- or above keeping in view the law laid down by the Supreme Court in Builders Association, in Goel and Co. to the extent not in conflict with Builders Association as held above and also as laid down in this judgment.
With the aforesaid directions these wirt petitions are disposed of.