m7a \ 4/ lN THE HQN'BLE H§GH COURT GF JUWCATURE E§R CHHAT'TfSGARH AT BiLAgpwR gym? PEHTEQN (11mg. é 040 @€ 209g jg the mgjjar pi : v I E§;itionersg (1) M/s. Hindustah Institute of' Pharmakon Limited A-5 Kasturba Nagar Bhopal (MR) a company incorporated under the provisions of thev Companies Act 1956 through its director Ashok Nanda fé’QaéZ Ashok Nanda S/o Late. Shri SriRam Nanda aged %2 about 53 years resident of 71'H5W Nw’kEhopai (MR) Versue (1) ' B‘eggondehie State 6r Chhattisgar through : Secretary, Departmen‘i of Commercial Tax, D.K.S. ’Mantraiaya Bhavan, Raipur (C.G.) ' Commissioner of Commercial Tax, Civil Lines, Raipur (CG) (3) Chhattisgarh State industrial Development Corporation Limited L.l.C. Campus Pandri, Raipur through its Financial Advisor i 5 I; h Bafore ' mn'ble the Chief J__u_§tice ami Fii$ com amm 'ué eg§ of the Hon'ble High Court @f Ju§imture fgt gtlhattisgarh at Bila3pur. Petition under Article 226 of the Constitution of india for issuanoej suitable directions orders or wi udin writs in the naturegi MgndamusL Certiorari etc. rts inclg HIGH $OURT OF CHHA‘H‘ISGARH. BILASPUR DB: HON’BLE LM. QUDDUSI & HON’BLE N.K. AGRAWAL, JJ W.P [11 No. 6040 of 2008 PETITIONER M] s. Hindustan Insiitute of Pharmakon Ltd. and another Vs. RESPONDENTS State of Chhattis arh 5r. 3 others w.p m No. 2118 or 2009 PETITIONER M/s. B.S.B.K. Private Limited and another ‘ Vs. RESPONDENTB Smte of Chhatu's arh 85 3 others WRIT PETITIONS UNDER ARTICLE 226 OF THE CONSTITUTION OF INDIA APPEARANCE: Mr. Neelabh Dubey, counsel for the Petitioners. Mr. Yashwant Singh Thakur, Deputy Advocate General for the State] respondents. / / ORDER 1o} -.1o.2o10) 'A Pa- 1.M. ounnusl, J These two writ petitions have been Eed under Aru'cle 226 of the Constitution of India by which the validity of Section 2'7 of the Chhatlisgarh Value 'Added Tax Act 2005 has been challenged with the relief that the r’espondents be directed to refund the Tax Deducted at Source (TDS) to the petitioner— Companies. ¢6Q (i) Brief facts of the case in W.P.T.No.6040/2008 axe that the petitioner Company is assessed to commercial tax in the State of Madhya Pradesh. They had procured 01de1's on 18.10.2006 for supply of surgical and other equipment at various places in Chhattisgarh. This was done in the coulse of commercial sale transaction with Chhattisgarh State Industrial DeVelopment Corporation Ltd (for short “CSIDC”). In accordance with the terms of the Contract with CSIDC the petitioner company raised severai bills on previous dates in the year 2006. The CSIDC in fnlhllmcnt of its contractual obligations paid the amounts mentioned in the bill raised but deducted commercial tax as per requirement under Section 27 of the VAT Act and paid them over to the Government on 09.07.2007. In this mgard, two Tax Deduction Om lilicates dated 12.10.2007 8n 10.01.2008 were issued in favour of the Petitioner Company. The petitioner Company explained to CSIDC that it was an interstate sale and thus no commercial tax as per the VAT Act could have been levied or deducted. The CSIDC in turn explained that it was acting in terms-of Section 27 which provides for deduction of tax without taking into account the nature of sales involved. This was the cause of action which prompted - the petitioner Company to challenge the validity of Section 27 of the VAT Act on the gmunds of legislative competence. (ii) Brief facts of the case in W.P(T) No.2118[2009 are that ‘ the Petitioner is a Company engaged in construction activities. The petiu'oner Company during the course of its business mceives and makes contract payments which are liable to Tax Deduc1ion at Soume (I‘DS) under the Chhatu'sgarh Value Added Tax 2005 Act, 2005 (hereinaftsr refermd to as the C.G. VAT Act, 2005). The petitioner Company is assessed to Commercial Tax with the State Authoriu'es in Chhattisgarh at Durg. The Company enters into contract with several emih'es for carrying out works conimct for Which it engages sub-contractors. Tax Deduction at Soumc (I‘DS) uls £27 of the C.G. VAT Act, 2005 has been made on payments made tothe petitioner Company. These payments Wele made by the petitioner Company and also on the payments made for sale of goods during execun‘on of works contract and also for labour and services rendered. In this mgard, Tax Deduction Certincate dated 08.08.2008 has been issued in favour of the petitionex Company. This was done and mandated u/s 27 of the Act, 2005 which is under challenge in this wn't petition. a(“ (iii) In sum and substance, the petitioners in both the writ petitions have sought to challenge the levy and collection of sales tax by method of TDS on the ground that it is beyond the legislative competence: of the State to enact such provisions. The main did‘elence between these two peh'iions is that W.P (T). No.6040/2008 relates to a cause of action that arose in the year 2007 prior to the amendment to Section 27 of the VAT Act whereas W.P.(T). No.2118/2009 Ielates to a continuing cause of action which arose alter the amendment. 3. Befom proceeding further, it is mlevant to repmduce sech'on 27 of the Chhattisgarh Value Added Tax Act, 2005. 27. Deduction and payment of tax in certain cam,-- (1) Any person responsible for mahng payment .of any sum to any dealer as la consideration for the sale or‘supply of any goods 1'11 pnrsuance of a contact between such dealer and the Central Government or a State. Government (hereinafter referred to in this section as the purchaser), shall before crediting such sum to the account of the dealer or before payment thereof in cash or by issue of a cheque or dratt or by any other mode, deduct an amount equal to the amount payable by the purchaser to the dealer by way of tax, where the totalamount payable by the purchaser to the dealer by way of tax, where the total amount of the bill exceeds rupees nve thousand and shall pay it to the State GOVCmment in such manner as may be prescribed. (2) Notwithstanding anything contained in any other provision of this Act, any person letting out a works contract of value exceeding rupees three lacs to a contractor ' involving sale of any goods in the course of execuh'on thereofby the contact shall before making the payment of any amount towards the value of such conhact to him, deduct at the rate of two per cent an amount towards the tax payable by the conu‘actor under this: Act Provided that no deduction shall be mnde under sub-secuon (1) or sub-section (2), if the amount oftaxmable by such dealer orperson is in respect of sales of any goods in the eoum of inter-St i trade or commerce or in the course of export out of the territory of India or import into the territory of India or export out side the state Mmended oide C.G. Act No.12 of2008). /’\ ,\ : (3) 0n deduction of the amount under sub— secu'on (1), or sub-section (2) the pcxson making such deduch'on shall issue to the dealer or the commctor, as the case may be, a celt'LL‘lcatc therefom in the plescribed form and aha“ deposit such amount into the Government ’I‘reasuxy in such manner and Within such pen'od as may be prescn'bed. (4) Any person mah'ng the payment under sub-section (1} or sub-section (2) shall-be deemed to have made the payment on the authority and on behalf of the dealer or; the contactor and the receipt for such payment shall constitute a good and su$cient discharge of the hablhty of the pumhaser to the dealer or the contractor to the extent of the amount specihed in the receipt. (5) Where any payment under sub-section (1) or sub-section (2) is made by 'a purchaser or the person letting out the connact, on behalf of the dealer or the contractor such payment shall constitute a good and sumcient discharge of the liability of the dealer or the contractor to pay tax in respect of such hansaction and the amount so paid shall be adjusted by him in such manner as may be prescribed. ‘(6) Where a person contravenes the provisions of sub-section (1), sub—section (2) or sub- section (3) the Commissioner may impose upon such person by way of penalty an amount which shall be 2 per cent per month of the amount required to be deducted under {sub-section (l) or sub-section (2), subject to a maximum of 25% of such amount. (7) Any such which a person is required to deduct under sub‘section (1) or sub-section (2) or the penalty imposed under sub-section (6) if it remains unpaid, be recoverable as an anear of land revenue. (8) Every person Inaking a deduction under sub~scction (1) or. sub-section (2) shall furnish a statement in such form, to such authority, in such manner and Within such time as may be prescribed. /// / x // / Ld gt? Explanation :’ For the purpose of sub-section(2), # pe1son" means— (i) Department of the Centml or the State Govcmment, (ii) Public Sector Undertaking, (iii) Municipality and Municipal Corporaiion, (iv) Authority constituted under any law for the time being in fame, (v) Limited Company. 4. In fact, the ChhalliSgarh VAT Act, 2005 has Ieplaced the Chhattisgarh Commercial Act 1994 and Section 27 of the VA'I‘ Act, 2005 in tum drew upon section 35 of the Act 1994, is in en‘ect pali-matelia to sech'on 35 of the Commercial Tax Act 1994. In fact, the Act 1994 was enfomed befoxe the Reorganization oi‘ the State of Madhya Pradesh that is lat November, 2000 and the validity of section 35 of the Commercial Tax Act 1994 was mst challenged befom the High Court of Madhya Pradesh in the matter of Patti Llyod Ltd. Vs. State of Madhya Pradesh (1996) 102 STC 2000 in which it has been observed by M.P. M.P. High Court that Entry 54 of the List-II empowers the State’tegslatme to enact laws on sales /. tax and therefole the State Legislature is competent to enact such a law. Thereafter, the validity of section 35 of the Commercial Tax Act was once again assailed before this Court: in case of m Constructions Vs. state of qhhatasgarh which was decided on 21“ February, 2006 and reported in (2006) 145 STC 185 wherein it has been held that the decision of M.P. /\ // / / / / High Court in Punj Llyod Ltd (supra) is a judgment per incun‘am and no longer a good law. A court decision as to the legal meaning of an enactment which is anived at per- incun'am is not a binding precedent and therefore, does not amount to dynamic pmcessing of the enactment. The Division Bench fuxther observed that as held in the Rickards Vs. Rickards {1990) Fam 194 and Wellcome Trust Ltd. V Hamad (I 998) QB 638, a Court gives a decision per incun'am “not only Where that decision is given in ignomnce or forgetmlness of some inconsistent statutory provision or some authon'ty binding on it, but also Where the decision involves a manifest slip or emor. It has also been held by this Court in case of VI‘P Construcu'ons (supra) that by virtue of Enuy 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 pumhase of goods, other than news papers. The Forty—sixth Amendment to the Constitution, inter-aim, 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 nansfer Of property in goods (whether as goods/or in some other form) involved in the execun'on of a inorks contract”. Arh‘ole 286(1) of the Constitution states that no law of a State shall impose, or authorize the imposit‘on of, a tax on the sale or purchase of goods‘where such sale or purchase takes place outside the State or in the Course of the import of goods into, or export of goods out of the territory of India. Article 286(2) authorizes Parliament by law to formulate principles for determining when a sale or purchase of goods takes place in / / y“ n / / o aixy of the ways mentioned in sub-article (1) of Article 286. Acting upon this power, Parliament has set out in sections, 3, 4 8n 5 of thc Cental Sales Tax Act, 1956, principles for determining when a sale or purchase of goods can be said to take place in the course of inter-State hade 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. The Division Bench further observed that vide Paras 9 8n 10 as follows: “There can be no doubt, upon a plain intexpxetat'on of section ‘35 of the Adhiniyam, that sech'on is enacted for the purposes of deduch'on 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, the person letting out a works contract is entitled (sic) to take into account the fact that the works contract involves transfer of property in goods consequent upon of an inter—State sale, an outside sale or a sale in the course of import. In other words, the person letting out a works contract is required by sub-section (1) of section 35 of the Adhiniyam to deposit towards the contractor’s liability to State sales tax of 2 per cent of such amount as he pays to the contractor, regardless of the hot that the value of the works contract mcludes the value of inter- State sales, outside sales or sales in the course of import. Thus, it is quite clear that the State t Leg'slature in enacting section 35 in the Adhiniyam acted beyond the power granted to it under Article 246 :1 of thc Constjmtjon’ mad with List I, enuy 92-A and 1 List-II, entry 54 of the Seventh Schedule. The provisions of section 13-AA of the Orissa Sales Tax Act 1947 and that of section 12A of the Himachal Pradesh General Sales Tax Act, 1968 which/ / / , \ g3 were substantially similar to the provisions of secu‘on 35 of the Commercial Act wen: struck down by the Supreme Court as unconstimtional on the gmund that those pmvisions wem beyond the pgxview of State Legislature in case of Steel Authority oflmiia Vs. State of On‘ssa (2000) 118 51C 297 and Nathpa Jhakri Jt.‘ Venture v. State of Himachal Wit (2000) 118 sm 306 (SC) respectively.” 7. Thus sec1ion 35 ofthe CG Vanijyij Kar Adhiniyam, 1994 was struck down declming it ultravires as being beyond the purview of the State Legislature 'ahd it was diiected that the / I amount collected nom the petitioner under the provisions of seciion 35 of the Adhim'yam, "if any, sha“ be forthwith refunded by the State to the Petitioner. A challenge to the same was made by the State of Chhattisgarh in Supreme Court by nling SLP which was converted into appeal but was dismissed upholding the decision of this Court that section 35 of the Act was constitutionally invalid. The same was reported in (2008) 12 VST 14 (SC) - State cf Chhatt‘lsgarh and others -vs- VTP Construcuans decided on 07th December, 2007. 8. At this stage, it is] necessary to reproduce the provision of sech‘on 35 ofthe C.G. Commercial Tax Act, 1994. 35. Deduction at source of tax payable by a contractor - Notwithstanding anything contained in any other provision of this Act, any person letting out a works contract: ofvalue exceeding one lac rupees to a contractor involving sale of any goods in the coulse of execution thereof by the contactor involving sale of any goods in the course of execution thereof by the contractor shall before making the payment of any/\\ 10 amount towards the value of such contact to him, deduct at the rate of two percent an amount towards the tax payable by the conttactor under this Act. The amount so deducted shall be adjusted towaxds the tax assessed on such comractor under Section 27 and any amount that mmains after such adjustment shall be refundable to the contactor. (2) 0n deduction of the amount at source under sub-section (1) the person making. such deduction shall issue a. certincate therefore to the contractor and shall deposit such amount into the Government Treasury in such manner and within such tune as may be prescribed (3) Any person malnng a payment of the amount under suh»sect10n (2) shall be deemed to have made the payment thereof on the authority and on behalf of the contractor and the treasury receipt for such payment shall constitute a good and sumcient discharge of the liability of the person to the contractor towards the value of the contract to the extent of the amount specihed in the receipt (4) Where any payment of any amount is made by a person under sub-section (2)011 behalf of a contractor such payment shall constitute a good and swcmnt discharge of the liability of the contractor to pay tax in respect of the sale of the goods in the course of execution of the Works contract hum the payment of the value whereof such amount has been deducted under sub section (1) and such amount shall be adjusted towards the tax payable by the contractor on the sale of such goods. the (5) Where a person contravenes :provisions of sub-section (1) or sub-section (2) the Commissioner shall impose upon such person by way of penalty an amount which shall be twenty nveper cent of the amount required to be deducted under sub— section (1). 11 6) Any amount, a person is required to deduct under sub-seciion (1) and to pay it into a Government Treasury under sub—secnbn (2) or the penalty payable under sub-section (5) remains unpaid shall be recoverable as an armar of land mvenue. Explanation.- For the purpose of this Section “person” means— (i) Department of the central or the State Government (ii) Public Sector undertaking. (iii) Municipalities and Municipal Corporation; (iv) Authorities consn'tuted under any law for the time being in force. (v) Public limited companies. (vi) Non—Governmental Organizations. A comparative study of both the provisions would show that the Legislature has made amendment by C.G. Act No.12 of 2008 in sub-section (2) of section 27 of the Act, 2005 by adding the proviso to the eEect that no deduction shall be made under sub-section (1) or sub—section(2), if the amount of tax payable by such dealer or person is in respect of sales of any goods, in the course of inter—State trade or commerce or in the course of export out of the territory of India or import in the territory of-alndia or export outside the State. The said amendment came into force w.e.f. 15.5.2008 and hence the amended provisions have no retrospecn've eEect as in W.P(T).No.6040/2008 the transaction was made in the year 2007, therefore, the amended provisions would not be applicable in W.Pfl‘).No.6040I 2008 with mucspective eh'ect. z 10. In View of the above, we have no hesitation to say that the provisions of section 27 of the C.G. Value Added Tax Act, /\ \ a / / / /_.' 12 b'cfore its amendment was pan' materia to section 35 of the C.G. Commercial Tax Act and as such they were beyond the purview of the State Leg’slatum to Enact such law and were not valid. However, after the amendment came into force w.e.f 15.05.2008 adding proviso to the edect that no deduct‘on shall be made under sub-seciion (1) or sub- section (2) of section 27 of the VAT Act, 2005, in lespect of sales of any goods in the coulse of inter-State trade or commerce or in the cou1se of export out of the territory of India or import in the territoty of lndia or export outside the - State, the tax is not leviable on such transactions. The defect leading to legislative incompetence has been removed and now the provision is well within State Legislative competence and we hold and declare accordingly. Therefore, both the writ pe1itions are disposed of with the direction that the respondents shall consider that in case of sales of any goods in the course of inter-State trade or commerce or in the course of export out of the territory of India or import in the territory of lndia or export outside the State, any tax was deducted n‘om the petitioners the same shall be refunded (t6 thepeh‘tioners. Rae Sd/- Sdl- I.M.Quddusi N.K_ Agrawal Judge Judge