Case: M/S. Rapti Commission Agency Vs. State Of U.P.

be said 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 Gannon Dunkerley and Co. and Ors. v. State of Rajasthan and 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 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. 13. There can be no doubt, upon a plain interpretation of Section 13AA, 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 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(1) to deposit towards the contractors 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 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." 10. In M/s Nathpa Jhakris case (supra) the view expressed in Steel Authority of Indias case (supra) was reiterated. 11. The High Court also observed that it was reading down and narrowing down the language of the provision to sustain the constitutional validity of the same. It was observed that the language of Section 8-E can be narrowed down so as to make it applicable only to intra-state sales/purchases. The appellant in fact raised the dispute on the factual aspects contending that the transaction was one of inter-state character. Its emphasis was on the validity of the provision vis-`-vis inter-state transactions. There was no necessity of any reading down as there was no dispute in the case at hand relating to intra-state sales. The question of appellant having liability to pay purchase tax was also not a relevant factor for determination of the basic question regarding validity of Section 8-E. The nature of a transaction cannot be decided on the basis of the provisions of a taxation statute. It has to be factually examined. The High Court instead of focussing on the factual aspects dealt with issues not relevant, and that too giving clearly indefensible interpretations. The factual aspects should have been asked to be dealt with by the authorities. By directing the authorities to do it after laying down the law, which as noted down was not the correct position in law, would really serve no purpose. On the facts of the case, there is no need to decide the question relating to validity of Section 8-E of the Act except stating that the provision is subject to what has been stated in Steel Authoritys case (supra) and M/s Nathpa Jhakris case (supra), for which the factual determination has to be done by the authorities. Therefore, we allow the appeal subject to the following directions: (1) The reply filed by the appellant on 11.7.2001 shall be dealt with by the respondent no. 3 in accordance with law. The said authority shall decide as to the nature of the transaction i.e. whether it is of intra- state or inter-state character. If it is of inter-State character, the decisions in Steel Authoritys case (supra) and Nathpa Jhakri case (supra) shall apply. Section 8-E, therefore, cannot be held applicable to inter-State transactions. (2) The question whether the appellant has any liability to pay purchase tax shall not be dealt with in the proceedings relating to which the notice was issued on 8.7.2001 and the reply was filed on 11.7.2001. (3) It will be for the appellant to establish that the transaction in question was of inter-State character. (4) The appellants shall be given opportunity to file further reply and place such materials as according to it are relevant before the concerned authority within four weeks from today. (5) Considering the reply and further reply and materials to be placed for consideration by the appellant, the concerned trade tax authority shall decide the issue in accordance with law. 12. Before we part with the case, it would be appropriate to remind the legislatures of what was stated in Bhawani Cotton Mills case (supra) that if a person is not liable for payment of tax at all, at any time, the collection of a tax from him, with a possible contingency of refund at a later stage, will not make the original levy valid, because if sales or purchases are exempt from taxation altogether, they can never be taken into account, at any stage, for the purpose of calculating or arriving at the taxable turnover and for levying tax. The view was reiterated in Steel Authoritys case (supra) and Nathpa Jhakri case (supra). In the latter case, it was noted, echoing the view in Bhawani Cotton Mills case (supra) that it is no solace to say that such a person can get refund after completion of assessment. If the principles indicated in these cases are followed, large number of unnecessary litigations can be avoided. 13.

Decision (1 = appeal accepted, 0 = rejected): 1

Explanation:
1[ds]Coming to the plea of alternative remedy, we find that such a plea does not appear to have been raised by the respondent as there is no discussion in the High Courts judgment in this regard. Further, the constitutional validity of Section 8-E issue could not have been decided by the statutory authorities. Be that as it may, we find that the High Court has thoroughly confused the issues. The decisions of this Court in Steel Authority of Indias case (supra) and M/s Nathpa Jhakris case (supra) related to legislative competence in the matter of deduction of tax under a state statute in respect of an inter-state transaction. The High Court commented upon the correctness of the judgments observing that several larger Benches decisions were not considered. To say the least the High Courts approach is inappropriate. The decisions in Steel Authoritys case (supra) and M/s Nathpa Jhakris case (supra) related to issues on which there appears to be no contrary view taken by any larger Bench. The High Court could not have sat in judgment over the correctness of the judgments of this Court. The High Court appears to have proceeded on the basis that this Court should have read down the provisions under consideration to uphold them.In other words, the rule applies only where two views are possible as to the meaning of the statutory language. In neither Steel Authoritys case (supra) nor M/s Nathpa Jhakris case (supra) that was the position. The basic issue related to power to provide for any deduction of tax in respect ofe transactions. There was no issue relating toe transactions. Therefore, the question of any reading down was of no relevance13. There can be no doubt, upon a plain interpretation of Section 13AA, 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 property in goods consequent upon of ane sale, an outside sale or a sale in the course of import. The owner is required by Section 13AA(1) to deposit towards the contractors 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 ofe sales, outside sales or sales in the course of import. There is, in 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 one sales, outside sales or sales in the course of import."In M/s Nathpa Jhakris case (supra) the view expressed in Steel Authority of Indias case (supra) was reiteratedThe High Court also observed that it was reading down and narrowing down the language of the provision to sustain the constitutional validity of the same. It was observed that the language of SectionE can be narrowed down so as to make it applicable only toe sales/purchases. The appellant in fact raised the dispute on the factual aspects contending that the transaction was one ofe character. Its emphasis was on the validity of the provisione transactions. There was no necessity of any reading down as there was no dispute in the case at hand relating toe sales. The question of appellant having liability to pay purchase tax was also not a relevant factor for determination of the basic question regarding validity of Section. The nature of a transaction cannot be decided on the basis of the provisions of a taxation statute. It has to be factually examined. The High Court instead of focussing on the factual aspects dealt with issues not relevant, and that too giving clearly indefensible interpretations. The factual aspects should have been asked to be dealt with by the authorities. By directing the authorities to do it after laying down the law, which as noted down was not the correct position in law, would really serve no purpose. On the facts of the case, there is no need to decide the question relating to validity of SectionE of the Act except stating that the provision is subject to what has been stated in Steel Authoritys case (supra) and M/s Nathpa Jhakris case (supra), for which the factual determination has to be done by the authorities. Therefore, we allow the appeal subject to the following directions:(1) The reply filed by the appellant on 11.7.2001 shall be dealt with by the respondent no. 3 in accordance with lawThe said authority shall decide as to the nature of the transaction i.e. whether it is of intrastate ore character. If it is ofe character, the decisions in Steel Authoritys case (supra) and Nathpa Jhakri case (supra) shall apply. Section, therefore, cannot be held applicable to(2) The question whether the appellant has any liability to pay purchase tax shall not be dealt with in the proceedings relating to which the notice was issued on 8.7.2001 and the reply was filed on 11.7.2001(3) It will be for the appellant to establish that the transaction in question was of(4) The appellants shall be given opportunity to file further reply and place such materials as according to it are relevant before the concerned authority within four weeks from today(5) Considering the reply and further reply and materials to be placed for consideration by the appellant, the concerned trade tax authority shall decide the issue in accordance with lawBefore we part with the case, it would be appropriate to remind the legislatures of what was stated in Bhawani Cotton Mills case (supra) that if a person is not liable for payment of tax at all, at any time, the collection of a tax from him, with a possible contingency of refund at a later stage, will not make the original levy valid, because if sales or purchases are exempt from taxation altogether, they can never be taken into account, at any stage, for the purpose of calculating or arriving at the taxable turnover and for levying tax. The view was reiterated in Steel Authoritys case (supra) and Nathpa Jhakri case (supra). In the latter case, it was noted, echoing the view in Bhawani Cotton Mills case (supra) that it is no solace to say that such a person can get refund after completion of assessment. If the principles indicated in these cases are followed, large number of unnecessary litigations can be avoided.