While upholding the decision of Single bench, the division bench of Madras High Court ruled that, Explanation V under Section 2(1)(aa) of the Tamil Nadu Additional Sales Tax Act, 1970, introduced by the Amendment Act 23 of 2002, to be ultra vires the Constitution of India and beyond the legislative competence of the State.
The respondents M/s.Taher Ali Industries & Projects (P) Ltd is in the field of manufacturing, laying, joining, testing and commissioning of PSC pipes, for water supply scheme on contract basis and it is a registered dealer under the Tamil Nadu General Sales Tax Act.
The nature of work carried on by them falls under the category of ‘Works Contract’ and is paying taxes at the compounded rate as per Section 7-C of the TNGST Act at the rate of 2% as the work done by the petitioner is civil construction work and is paying the taxes on the total value of the contract as per the provisions of the TNGST Act.
The company contended that, as per the taxable turnover as defined under Section 2(p) of the TNGST Act and the turnover as defined under Section 2(r) of the TNGST Act, while determining the total and taxable turnover, for the purpose of levy of tax under Section 3 and other Charging Sections, the levy of tax at the compounded rate under Section 7-C of the TNGST Act, does not relate or refer to the taxable turnover, but refers to the value of the works contract or contracts.
Also submitted that, as per Section 2(1)(aa) of the Tamil Nadu Additional Sales Tax Act, 1970if the taxable turnover of a dealer exceeds Ten Crores of Rupees, then an additional sales tax calculated at the rates mentioned in the above provisions has to be paid. However, the Assessing Authority sought to impose additional sales tax in respect of the works contract in relation to which it had opted to pay tax at compounded rate under Section 7-C of the TNGST Act and it was objected to on the ground that insofar as the additional sales tax under the 1970 Act is concerned, it can be levied only on the taxable turnover when there was no determination of taxable turnover in the case of an assessee who opted to pay tax at the compounded rate under Section 7-C of the TNGST Act and further there is no statutory provision available authorising the levy of additional sales tax in respect of such transactions and as such, the said levy would be unconstitutional as being not authorised by law.
The single Judge in the impugned Judgment made an opinion that, the imposition of sales tax on the total contract value, is not within the competence of the State Legislature, as it is only the transfer of goods, on which tax can be imposed and the impugned Explanation V to Section 2(1)(aa) of the Act, thus, expands, the scope of charging Section, which is not permissible
While dismissing the appeal filed by state, the Division Bench comprising of Justice M. Sathyanarayanan and Justice V.M. Velumani observed that, “there is no error apparent or infirmity in the reasons assigned in the impugned order in allowing the writ petition declaring that the inclusion of the explanation was beyond the legislative competence of the State legislature”.
Read the full text of the Judgment below.
