JUDGMENT
Somasundaram, J.
1. Writ Appeals Nos. 982, 1045 to 1047, 1093, 1387, 1467 and 1468 of 1994 arise out of the common orders of the learned single Judge, dated June 13, 1994 Reported as Kamatchi Lamination (P) Ltd. v. State of Tamil Nadu [1994] 95 STC 378 (Mad) and July 27, 1994 in Writ Petitions Nos. 16044 of 1993, 20326 of 1993, 3406 of 1994, 4885 of 1994, 14019 of 1994, 17991 of 1993, 18454 of 1993 and 551 of 1994 respectively which were disposed of by the learned single Judge along with a batch of other writ petitions. The prayer in the writ petitions out of which these writ appeals arise is, to issue a writ of declaration declaring that section 3-B inserted by the provisions of the Tamil Nadu General Sales Tax (Second Amendment) Act, 1993 (Tamil Nadu Act No. 25 of 1993), is ultra vires articles 14, 19(1)(g) and 366(29-A), entry 54 of List II of the Seventh Schedule and articles 301 and 304 of the Constitution of India, void and unenforceable. The prayer in Writ Petitions Nos. 16680 and 18350 of 1994 which are heard along with these writ appeals is also the same. As the points involved in the writ appeals and the writ petitions are common, they are disposed of by this common judgment.
2. The relevant portion of section 3-B of the Tamil Nadu General Sales Tax Act, 1959 (hereinafter referred to as “the Act”), inserted by the provision of Tamil Nadu Act No. 25 of 1993 which is challenged in the writ petitions out of which these writ appeals arise and in the writ petitions is as follows :
“3-B. Levy of tax on the transfer of goods involved in works contract. – (1) Notwithstanding anything contained in sub-sections (2-A), (2-B), (3), (4), (7) and (8) of section 3, or section 7-A, but subject to the other provisions of this Act including the provisions of sub-section (1) of section 3, every dealer referred to in item (vi) of clause (g) of section 2 shall pay, for each year, a tax on his taxable turnover of transfer of property in goods involved in the execution of works contract at the rates mentioned in sub-section (2) of section 3 or, as the case may be, in section 4.
Explanation. – Where any works contract involves more than one item of work, the rate of tax shall be determined separately for each such item of work.
(2) The taxable turnover of the dealer of transfer of property involved in the execution of works contract shall, on and from the 26th day of June, 1986, be arrived at after deducting the following amounts from the total turnover of that dealer –
(a) all amounts involved in respect of goods involved in the execution of works contract in the course of export of the goods out of the territory of India, or in the course of import of the goods into the territory of India or in the course of inter-State trade or commerce;
(b) all amounts for which any goods specified in the First Schedule or Second Schedule, are purchased from registered dealers liable to pay tax under this Act and used in the execution of works contract in the same form in which such goods were purchased;
(c) all amounts relating to the sale of any goods involved in the execution of works contract which are specifically exempted from tax under any of the provisions of this Act;
(d) all amounts paid to the sub-contractors as consideration for execution of works contract whether wholly or partly :
Provided that no such deduction shall be allowed unless the dealer claiming deduction, produces proof that the sub-contractor is a registered dealer liable to pay tax under this Act and that the turnover of such amounts is included in the return filed by such sub-contractor; and
(e) all amounts towards ‘labour charges and other like charges’ not involving any transfer of property in goods, actually incurred in connection with the execution of works contract, or such amounts calculated at the rate specified in column (3) of the Table below, if they are not ascertainable from the books of accounts maintained and produced by a dealer before the assessing authority.”
3. The learned single Judge who heard the writ petitions, by his orders dated June 13, 1994 Reported as Kamatchi Lamination (P) Ltd. v. State of Tamil Nadu [1994] 95 STC 378 (MAD.) and July 27, 1994, upheld the constitutional validity of section 3-B of the Act. The learned single Judge while upholding the constitutional validity of section 3-B summarised his conclusions in para 68 of the order as follows :
“In fine, the conclusions and findings are summarised as below :
(1) Sec-tion 3-B (both prior to and after March 12, 1993) is not violative of article 286(3)(a) of the Constitution as well as sections 14 and 15 of the Central Act.
(2) Reasonable profit margin of the contractor on declared goods involving in the execution of a works contract should also go in deduction from the ‘total turnover’ for arriving at ‘taxable turnover’.
(3) The extent of cost of establishment of the contractor as relatable to the supply of ‘labour and services’ and reasonable profit margin on labour’, besides ‘cost of consumables in the execution of works contract’ should also go in deduction from the ‘total turnover’ for arriving at the ‘taxable turnover’.”
As already stated these writ appeals are directed against the said common orders of the learned single Judge dated June 13, 1994 Reported as Kamatchi Lamination (P) Ltd. v. State of Tamil Nadu [1994] 95 STC 378 (Mad.) and July 27, 1994.
4. Mr. C. Natarajan, learned counsel for the appellants in Writ Appeal No. 982 of 1994 contended in the first place that by reason of the restrictions imposed by section 15 of the Central Sales Tax Act, 1956, the conditions imposed by section 3-B(2)(b) of the Act that in order to claim deductions from the total turnover in respect of the goods specified in the First Schedule or Second Schedule, such goods must be used in the execution of works contract in the same form in which such goods were purchased, will result in levying tax at more than one stage and thereby section 3-B of the Act violates the mandate contained in clause (a) of section 15 of the Central Sales Tax Act, and article 286(3) of the Constitution and therefore, section 3-B of the Act is invalid and liable to be struck down. The learned counsel for the appellants next contended that the State Legislature has to prescribe specific and definite point for the tax on declared goods which has been done under section 4 of the Act. The State Legislature cannot state that over and above the taxable point on the sale by unregistered dealer under section 4 of the Act, for the contractor there will be a further liability at the hands of the contractor when he purchases from either a registered dealer not liable to pay tax or an unregistered dealer and that there cannot be two points of taxation under the State law for declared goods. The third contention of Shri C. Natarajan is that section 3-B(2)(b) of the Act is invalid, because it provides that only the amounts for which the goods specified in the First and Second Schedule are purchased are to be deducted because this results in the value of the goods at the time of transfer being ignored. According to the learned counsel, this also results in the profit margin and the transfer value at the place of sale get added to the taxable turnover. The further contention of the learned counsel for the appellants is that in any event when the sub-contractor is liable on the value of the goods at the time of the transfer, there cannot be a further liability on the main contractor. Hence, once the sub-contractor is shown to have paid the tax on the value of the goods transferred, the main contractor cannot be again taxed on the amount received from the customer in respect of the transfer of property in goods where there is a margin of profit or loss at the hands of the contractor. Lastly, the learned counsel for the appellants submitted that section 3-B(2)(e) of the Act is invalid, because it limits the expenses towards labour charges and other like charges to the actual cost as evident from the expression “actually incurred in connection with the execution of works contract”. According to the learned counsel the profit margin of the contractor in providing services involving professional skill from the stage of designing, supervising and execution of the project has to be excluded. The further submission of Mr. C. Natarajan, learned counsel for the appellants is that the Legislature cannot tax the professional income of the contractor by allowing only the actually incurred expenses under section 3-B(2)(e) of the Act. Mr. V. Ramachandran, learned Senior Counsel appearing for the appellants in W.A. No. 1093 of 1994 and Mr. K. J. Chandran, learned counsel for the appellant in W.A. No. 1467 of 1994 and petitioner in W.P. No. 16680 of 1994 contended that in the case of works contract relating to dyeing and printing, the dye or ink as the case may be, used in such works contract are consumed in the execution of the works contract and that there is no transfer of property in the goods and therefore, the cost of the consumables are includible in the expression “labour charges and other like charges”, as deduction under section 3-B(2)(e) of the Act, in computing the taxable turnover of the contractor.
5. Mrs. Chitra Venkataraman, learned Additional Government Pleader (Taxes), countered the contentions of the learned counsel for the appellants and submitted that under section 3-B what is really taxed is only the taxable turnover as determined and not the whole of the turnover or value of the contract as a whole. It is also contended that notwithstanding the non obstante clause used in section 3-B in respect of certain charging provisions, the levy is made only “subject to provisions of this Act” as found specifically stated in the very provision and read in that manner with other provisions, the omissions complained of by the appellants would be of no consequence whatsoever. The further contention of the learned Additional Government Pleader (Taxes) is that this Court, even if it is found that section 3-B or any of the provisions have not been either happily worded or is found couched in wide terms, has to read them down so as to make them constitutionally valid. The learned Additional Government Pleader (Taxes) also contended that section 3-B of the Act is quite in accordance with law laid down by the Supreme Court in the decisions Gannon Dunkerley & Co. v. State of Rajasthan [1993] 88 STC 204 and Builders’ Association of India v. State of Karnataka [1993] 88 STC 248 and is not vitiated in any manner for any of the alleged infirmities and the alleged infirmities in the course of levy in certain given situations are matters which have got to be, dealt with and adjudicated at the time of individual assessments and not even if true, affect the constitutional validity of section 3-D of the Act.
6. In the light of the rival contentions of the learned counsel for the parties, the following points arise for consideration in these writ appeals and the writ petitions :
(1) Whether the condition prescribed by sub-section (2)(b) of section 3-B that in order to claim deduction from the total turnover in respect of the amounts for which the goods specified in the First Schedule or Second Schedule are purchased, such goods must be used in the execution of works contract in the same form in which the said goods were purchased, will result in levying tax at more than one stage violating the mandate contained in section 15 of the Central Sales Tax Act and article 286(3) of the Constitution and on that ground whether section 3-B of the Act is liable to be struck down ?
(2) Whether the condition prescribed in sub-section (2)(b) of section 3-B of the Act that in order to claim deduction from the total turnover in respect of the amounts for which the goods specified in the First or Second Schedule are purchased, such goods must be purchased from registered dealers liable to pay tax under the Act, will result in levying tax at more than one stage and on that ground whether section 3-B of the Act is liable to be struck down ?
(3) Whether section 3-B is invalid because sub-section (2)(b) of section 3-B provides that only the amount for which the goods specified in the First or Second Schedule are purchased, are to be deducted and does not provide for the deduction of the profit margin as well as the value at the time of transfer of such goods in computing the taxable turnover of the dealer ?
(4) Whether section 3-B of the Act is invalid because sub-section (2)(e) of section 3-B limits the expenses towards labour charges and other charges, equal to the actual charges incurred in connection with the execution of the works contract, without providing for exclusion of the profit margin of the contractor ?
(5) Whether the cost of consumables, not involving transfer of property in goods which go in the manufacture of goods involved in the execution of works contract, are includible in the expression “labour charges and other like charges”, as a deduction under clause (e) of sub-section (2) of section 3-B, in computing the taxable turnover of the contractor.
7. Point No. 1 :
The contention of Mr. C. Natarajan, learned counsel for the appellants in this regard is that the condition imposed by sub-section (2)(b) of section 3-B of the Act that in order to claim deduction from the total turnover in respect of the amounts for which the goods specified in the First and Second Schedule are purchased, such goods must be used in the execution of works contract in the same form in which they were purchased, will result in levying tax at more than one stage and thereby violates the provisions contained in section 15(a) of the Central Sales Tax Act, and therefore, section 3-B is invalid. In order to appreciate the above contention of the learned counsel for the appellants, it is necessary to refer to the relevant provisions of the Constitution and the Central Sales Tax Act. In view of article 366(29-A) of the Constitution, the State Legislatures are competent to impose tax on transfer of property in goods involved in the execution of works contract and under article 286(3)(b) of the Constitution, the Parliament has been empowered to make a law specifying the restrictions and conditions in regard to the system of levy, rates or incidents of such tax. Section 14 of the Central Sales Act contains a list of declared goods. By the said section 14 of the Central Sales Tax Act, the Parliament has declared the following goods as goods of special importance in inter-State trade or commerce :
“(i) Cereals, that is to say, –
(i) paddy (Oryza sativa L.);
(ii) rice (Oryza sativa L.);
(iii) wheat (Triticum vulgare, T. compactum, T. sphaerococcum, T. durum, T. aestivum L.T. dicoccum);
(iv) jowar or milo (Sorghum vulgare Pers);
(v) bajra (Pennisetum typhoideum L.);
(vi) maize (Zea mays D.);
(vii) ragi (Eleusine coracana Gaertn.);
(viii) kodon (Paspalum scrobiculatum L.);
(ix) kutki (Panicum miliare L.);
(x) barley (Hordeum vulgare L.)
(ia) coal, including coke in all its forms, but excluding charcoal :
Provided that during the period commencing on the 23rd day of February, 1967 and ending with the date of commencement of section 11 of the Central Sales Tax (Amendment) Act, 1972, this clause shall have effect subject to the modification that the words ‘but excluding charcoal’ shall be omitted;
(ii) cotton, that is to say, all kinds of cotton (indigenous or imported) in its unmanufactured state, whether ginned or unginned, baled, pressed or otherwise, but not including cotton waste;
(iia) cotton fabrics, as defined in item No. 65 of the First Schedule to the Central Excises and Salt Act, 1944 (Central Act 1 of 1944);
(iib) cotton yarn, but not including cotton yarn waste;
(iic) crude oil, that is to say, crude, petroleum oils and crude oils obtained from bituminous minerals (such as shale, calcareous rock, sand), whatever their composition, whether obtained from normal or condensation oil-deposits or by the destructive distillation of bituminous minerals and whether or not subjected to all or any of the following processes :-
(1) decantation;
(2) de-salting;
(3) dehydration;
(4) stabilisation in order to normalise the vapour pressure;
(5) elimination of very light fractions with a view to returning them, to the oil-deposits in order to improve the drainage and maintain the pressure;
(6) the addition of only those hydrocarbons previously recovered by physical methods during the course of the abovementioned processes;
(7) any other minor process (including addition of pour point depressants or flow improvers) which dose not change the essential character of the substance;
(iii) hides and skins, whether in a raw or dressed state;
(iv) iron and steel, that is to say, –
(i) pig iron and cast iron including ingot moulds, bottom plates, iron scrap, cast iron scrap, runner scrap and iron skull scrap;
(ii) steel semis (ingots, slabs, blooms and billets of all qualities, shapes and sizes);
(iii) skelp bars, tin bars, sheet bars, noe-bars and sleeper bars;
(iv) steel bars (rounds, rods, squares, flats, octagons and hexagons, plain and ribbed or twisted, in coil form as well as straight lengths);
(v) steel structurals (angles, joists, channels, tees, sheet piling sections, Z sections or any other rolled sections);
(vi) sheets, hoops, strips and skelp, both black and galvanised, hot and cold rolled, plain and corrugated, in all qualities, in straight lengths and in coil form, as rolled and in riveted condition;
(vii) plates, both plain and chequered in all qualities;
(viii) discs, rings, forgings and steel castings;
(ix) tool, alloy and special steels of any of the above categories;
(x) steel melting scrap in all forms including steel skull, turnings and borings;
(xi) steel tubes, both welded and seamless, of all diameters and lengths, including tube fittings;
(xii) tin-plates, both hot dipped and electrolytic and tinfree plates;
(xiii) fish plate bars, bearing plate bars, crossing sleeper bars, fish plates, bearing plates, crossing sleepers and pressed steel sleepers, rails-heavy and light crane rails;
(xiv) wheels, tyres, axles and wheel sets;
(xv) wire rods and wires-rolled, drawn, galvanised, aluminised, tinned or coated such as by copper;
(xvi) detectives, rejects, cuttings or end pieces of any of the above, categories;
(v) jute, that is to say, the fibre extracted from plants belonging to the species Corchorus capsularis and Corchorus olitorius and the fibre known as mesta or bimli extracted from plants of the species Hibiscus cannabinus and Hibiscus sabdariffa-Varaltissima and the fibre known as Sunn or Sunn hemp extracted from plants of the species Crotalaria juncea whether baled or otherwise;
(vi) oil-seeds, that is to say, –
(i) Groundnut or peanut (Arachis hypogaes);
(ii) Sesamum or til (Sesamum orientale);
(iii) Cotton seed (Gossypium Spp.);
(iv) Soyabean (Glycine seja);
(v) Rapeseed and Mustard –
(1) Torta (Brassica campestris var toria);
(2) Rai (Brassica juncea);
(3) Jamba-Taramira (Eruca Satiya);
(4) Sarson, yellow and brown (Brassica campestris var sarson);
(5) Banarsi Rai or True Mustard (Brassica nigra);
(vi) Linseed (Linum usitatissimum);
(vii) Castor (Ricinus communis);
(viii) Coconut (i.e., Copra excluding tender coconuts) (Cocos nucifera);
(ix) Sunflower (Helianthus annus);
(x) Nigar seed (Guizotia abyssinica);
(xi) Neem, vepa (Azadirachta indica);
(xii) Mahua, illupai, ippe (Madhuca Indica M. Latifolia, Bassia, Latifolia and Madhuca longifolia syn. M. Longifolia);
(xiii) Karanja, Pongam, Honga (Pongamia pinnata syn P. Glabra);
(xiv) Kusum (Schleichera oleosa, syn. S. Trijuga);
(xv) Punna, Undi (Calophyllum, inophyllum);
(xvi) Kokum (Carcinia indica);
(xvii) Sal (Shorea robusta);
(xviii) Tung (Aleurites fordii and A. Montana);
(xix) Red palm (Elaeis guinensis);
(xx) Safflower (Carthanus tinctorius);
(via) pulses, that is to say, –
(i) gram or gulab gram (Cicerarietinum L.);
(ii) tur or arbar (Cajanus cajan.);
(iii) moong or green gram (Phaseolus aureus);
(iv) masur or lentil (Lens esculenta Moench, Lens culinaris Medic);
(v) urad or black gram (Phaseolus mungo);
(vi) moth (Phaseolus aconitifolius Jacq);
(vii) lakh or khesari (Lathyrus sativus L.);
(vii) rayon or artificial silk fabrics, as defined in item No. 73 of the First Schedule to the Central Excises and Salt Act, 1944 (1 of 1944);
(viii) sugar, as defined in item No. 74 of the First Schedule to the Central Excises and Salt Act, 1944 (1 of 1944);
(ix) tobacco, as defined in item No. 75 of the First Schedule to the Central Excises and Salt Act, 1944 (1 of 1944); and
(x) woollen fabrics, as defined in item No. 76 of the First Schedule to the Central Excises and Salt Act, 1944 (1 of 1944);”
Section 15 of the Central Sales Tax Act imposes certain restrictions and conditions in regard to tax on sale or purchase of declared goods within the State. Section 15(a) is relevant for our purpose and it reads thus :
“Every sales tax law of a State shall, in so far as it imposes or authorises the imposition of a tax on the sale or purchase of declared goods, be subject to the following restrictions and conditions, namely :
(a) the tax payable under that law in respect of any sale or purchase of such goods inside the State shall not exceed four per cent of the sale or purchase price thereof, and such tax shall not be levied at more than one stage;”
Sub-section (1) of section 3-B of the Act says that notwithstanding anything contained in sub-sections (2-A), (2-B), (3), (4), (7) and (8) of section 3, or section 7-A but subject to the other provisions of this Act including provisions of sub-section (1) of section 3, every dealer referred to in item (vi) of clause (g) of section 2 shall pay, for each year, a tax on his taxable turnover of transfer of property. In goods involved in the execution of works contract at the rates mentioned in sub-section (2) of section 3, or as the case may be, in section 4. According to sub-section (2)(b) of section 3-B, the taxable turnover of the dealer of transfer of property involved in the execution of works contract shall be arrived at after deducting from the total turnover of amounts for which any goods specified in the First or Second Schedule are purchased from registered dealers liable to pay tax under the Act and used in the execution of works contract in the same form in which the goods were purchased. As already pointed out, the submission of the learned counsel for the appellants is that the mandate of section 15(a) of the Central Sales Tax Act is that in the case of declared goods there cannot be levy of tax at more than one stage, that if the declared goods purchased by the dealer are used in the execution of the works contract not in the same form in which they are purchased, but used in some other form the dealer, in view of sub-section (2)(b) of section 3-B is not entitled to claim deduction from the total turnover in respect of those goods used in some other form, which will result in levy of tax at more than one stage and therefore, the said condition prescribed in sub-section (2)(b) of section 3-B that the goods must be used in the same form in which they are purchased, violates section 15(a) of the Central Sales Tax Act. However, we are unable to accept the above contention of the learned counsel for the appellant. The settled position of law is that whenever a commercial commodity which has suffered sales tax is transformed into another distinct commercial commodity, it it becomes a separate and distinct commercial commodity for the purposes of levy of sales tax and it can be taxed again and in such a case, section 15(a) of the Central Sales Tax Act will have no application. When the dealer purchases a commercial commodity which has suffered sales tax and out of such commercial commodity purchase by the dealer, he manufactures another distinct commercial commodity and uses the same in the execution of works contract, the commercial commodity purchased by the dealer is not used in the execution of the works contract in the same form in which it is purchased and in such a case what is used in the execution of the works contract is a distinct and different commodity though manufactured out of the commodity purchased by him and which has suffered sales tax. When the commodity purchased by the dealer and which has suffered tax is transformed into another distinct commercial commodity after purchase by the dealer and when it is used in the execution of the works contract, since the two goods, viz., the commodity purchased by the dealer and the commodity used in the execution of works contract are distinct and different commercial commodities failing under two different sub-items of an entry under section 14 of the Central Sales Tax Act, the question of levying sales tax at more than one stage on the same commodity does not arise. In other words, when the goods used by the dealer in the execution of the works contract is commercially different from the goods purchase the dealer, falling under different sub-items of an entry under section 14 of the Central Sales Tax Act, the question of contravention of section 15(a) of the Central Sales Tax Act which prohibits levy of sales tax on declared goods at more than one stage does not arise and on that ground, it cannot be contended that section 3-B is invalid. This position is clear from the decision of the apex Court in State of Tamil Nadu v. Pyare Lal Malhotra [1976] 37 STC 319. In that case, the apex Court examined the question whether the steel rounds, flats, plates, etc., manufactured out of iron scrap exigible to tax under the provisions of the TNGST Act. These products were also declared goods and therefore, an argument was advanced before the apex Court that iron scrap from which the goods had been manufactured having suffered sales tax, tax could not be realised once again from the sale of steel rounds, flats, plates, etc. The apex Court did not accept the above contention and held that each sub-item in entry No. (iv) under section 14 of the Central Sales Tax Act is a separate taxable commodity for the purposes of sales tax and each of them form a separate species for each series of sales although they may belong to the same genus that is iron and steel. Therefore, the apex Court held that the manufactured goods consisting of steel rounds, flats, plates, etc., or similar goods and shapes could be taxed again, even if the material out of which they were made had already been subjected to sales tax once as iron and steel scrap. In the said decision, the apex Court after referring to the various sub-items in item (iv) of section 14 of the Central Sales Tax Act, observed as follows :
“It will be seen that ‘iron and steel’ is now divided into 16 categories which clearly embrace widely different commercial commodities, from mere scrap iron and leftovers of processes of manufacturing to ‘wires’ and ‘wheels, tyres, axles and wheel sets’. Some of the enumerated items like ‘melting scrap’ or ‘tool alloys’ and ‘special steels’ could serve as raw material out of which other goods are made and others are definitely varieties of manufactured goods. If the subsequent amendment only clarifies the original intentions of Parliament, it would appear that heading (iv) in section 14, as originally worded, was also meant to enumerate separately taxable goods and not just to illustrate what is just one taxable substance : ‘iron and steel’. The reason given, in the Statement of Objects and Reasons of the 1972 Act, for an elucidation of the ‘definition’ of iron and steel, was that the ‘definition’ had led to varying interpretations by assessing authorities and the courts so that a comprehensive list of specified declared iron and steel goods would remove ambiguity. The Select Committee, which recommended the amendment, called each specified category ‘a sub-item’ falling under ‘iron and steel’. Apparently, the intention was to consider each ‘sub-item’ as a separate taxable commodity for purpose of sales tax. Perhaps some items could overlap, but no difficulty arises in cases before us due to this feature. As we have pointed out, the statement of reasons for amendment spoke of section 14(iv) as a ‘definition’ of ‘iron and steel’. A definition is expected to be exhaustive. Its very terms may, however, show that it is not meant to be exhaustive. For example, a purported definition may say that the term sought to be defined ‘includes’ what it specifies, but, in that case, the definition itself is not complete.
Although, we have looked at the subsequent amendment of 1972 in order to find an indication of the original intention, because subsequent history of legislation is not irrelevant, yet, we think that, even if we confine our attention to section 14, as it originally stood at the relevant time, with which we are concerned in the cases before us, the object was not to lay down that all the categories or sub-items of goods, as specified separately ever before the amendment of 1972, were to be viewed as a single salable commodity called ‘iron and steel’ for purposes of determining a starting point for a series of sales. On the other hand, the note against the brackets in front of the five smaller sub-divisions of (d) makes it clear that even each sub-category of a sub-item retains its identity as a commercially separate item for purposes of sales tax so long as it retains the sub-division. The more natural and normal meaning of such a mode of listing special or declared kinds of goods seems to us to be that the object of specification was to enumerate only those categories of items, each of which was to serve as a new starting point for a series of sales, which were to be classed as ‘declared’ goods. If one were to state the meaning in different words, it would seem to us to be : ‘iron and steel goods of various types enumerated below’.
What we have inferred above also appears to us to be the significance and effect of the use of the words ‘that is to say’ in accordance with their normal connotation and effect. Thus, in Stroud’s Judicial Dictionary, 4th Edition, Volume 5, at page 2753, we find :
‘That is to say. – (1) “That is to say” is the commencement of an ancillary clause which explains the meaning of the principal clause. It has the following properties :
(1) it must not be contrary to the principal clause; (2) it must neither increase nor diminish it; (3) but where the principal clause is general in terms it may restrict it : see this explained with many examples, Stukeley v. Butler, Hob. 171.’
The quotation, given above, from Stroud’s Judicial Dictionary shows that, ordinarily, the expression ‘that is to say’ is employed to make clear and fix the meaning of what is to be explained or defined. Such words are not used, as a rule, to amplify a meaning while removing a possible doubt for which purpose the word ‘includes’ is generally employed. In unusual cases, depending upon the context of the words ‘that is to say’, this expression may be followed by illustrative instances. In Megh Raj v. Allah Rakhia AIR 1947 PC 72, the words ‘that is to say’, with reference to a general category ‘land’ were held to introduce, ‘the most general concept’ when followed, inter alia, by the words ‘right in or over land’. We think that the precise meaning of the words ‘that is to say’ must vary with the context. Where, as in Megh Raj’s case AIR 1947 PC 72, the amplitude of legislative power to enact provisions with regard to ‘land’ and rights over it was meant to be indicated, the expression was given a wide scope because it came after the word ‘land’ and then followed ‘rights over land’ as an explanation of ‘land’. Both were wide classes. The object of using them for subject-matter of legislation, was obviously to lay down a wide power to legislate. But, in the context of single point sales tax, subject to special conditions when imposed on separate categories of specified goods, the expression was apparently meant to exhaustively enumerate the kinds of goods on a given list. The purpose of an enumeration in a statute dealing with sales tax at a single point in a series of sales would very naturally be to indicate the types of goods each of which would constitute a separate class for a series of sales. Otherwise, the listing itself loses all meaning and would be without any purpose behind it.
Learned counsel appearing for an intervener argued that the chemical composition of iron and steel affords a clue to the meaning of ‘iron and steel’ as used in section 14 of the Central Act. We are unable to agree that this could be what Parliament or any Legislature would be thinking of when enumerating items to be taxed as commercial goods. The ordinary meaning to be assigned to a taxable item in a list of specified items is that each item so specified is considered as a separately taxable item for purposes of single point taxation in a series of sales unless the contrary is shown. Some confusion has arisen because the separate items are all listed under one heading : ‘iron and steel’.
If the object was to make iron and steel taxable as a substance, the entry could have been : ‘Goods of iron and steel’. Perhaps even this would not have been clear enough. The entry, to clearly have that meaning, would have to be : ‘Iron and steel irrespective of change of form or shape or character of goods made out of them’. This is the very unusual meaning which the respondents would like us to adopt. If that was the meaning, sales tax law itself would undergo a change from being a law which normally taxes sales of ‘goods’ to a law which taxes sales of substances out of which goods are made. We, however, prefer the more natural and normal interpretation which follows plainly from the fact of separate specification and numbering of each item. This means that each item so specified forms a separate species for each series of sales although they may all belong to the genus : ‘iron and steel’. Hence, if iron and steel ‘plates’ are melted and converted into ‘wire’ and then sold in the market, such wire would only be taxable once so long as it retains its identity as commercial goods belonging to the category ‘wire’ made of either iron or steel. The mere fact that the substance or raw material out of which it is made has also been taxed in some other form, when it was sold as a separate commercial commodity, would make no difference for purposes of the law of sales tax. The object appears to us to be to tax sales of goods of each variety and not the sale of the substance out of which they are made.
As we all know, sales tax law is intended to tax sales of different commercial commodities and not to tax the production or manufacture of particular substances out of which these commodities may have been made. As soon as separate commercial commodities emerge or come into existence, they become separately taxable goods or entities for purposes of sales tax. Where commercial goods, without change of their identity as such goods, are merely subjected to some processing or finishing or are merely joined together, they may remain commercially the goods which cannot be taxed again, in a series of sales, so long as they retain their identity as goods of a particular type.”
In the above decision, the Supreme Court further observed at page 326, as follows :
“It is true that the question whether goods to be taxed have been subjected to a manufacturing process so as to produce a new marketable commodity, is the decisive test in determining whether an excise duty is leviable or not on certain goods. No doubt, in the law dealing with the sales tax, the taxable event is the sale and not the manufacture of goods. Nevertheless, if the question is whether a new commercial commodity has come into existence or not, so that its sale is a new taxable event, in the sales tax law, it may also become necessary to consider whether a manufacturing process, which has altered the identity of the commercial commodity, has taken place. The law of sales tax is also concerned with ‘goods’ of various descriptions. It therefore, becomes necessary to determine when they ceased to be goods of one taxable description and become those of a commercially different category and description.
It appears to us that the position has been simplified by the amendment of the law, as indicated above, so that each of the categories falling under ‘iron and steel’ constitutes a new species of commercial commodity more clearly now. It follows that when one commercial commodity is transformed into another, it becomes a separate commodity for purposes of sales tax.
We think that the Madras High Court had committed an error in applying Hiralal’s case to the decision of cases now before us, which turns really on a correct interpretation of section 14 of the Central Act. On the question now before us, we approve of the reasoning adopted by a Division Bench of the Punjab High Court in Devgun Iron and Steel Rolling Mills v. State of Punjab [1961] 12 STC 590.”
8. In Telangana Steel Industries v. State of Andhra Pradesh , the specific question decided by the apex Court is whether wire rods and wires occurring in section 14(iv)(xv) of the Central Sales Tax Act are different commercial commodities. The appellant in that case relying on Pyare Lal Malhotra’s case , contended that inasmuch as wire rod and wire are mentioned in one sub-item of section 14 of the Central Sales Tax Act, they have to be treated as one goods and not two different goods. The apex Court accepted the above contention and held that under sub-item (xv) of item, (iv) of section 14 of the Central Sales Tax Act, wires were thought of as an integral part of rods and not distinct from rods, because the sub-item speaks about wires “rolled, drawn, galvanised, aluminised, tinned or coated” which shows that the Legislature did not want wires, even if the same be a separate commercial commodity, to be taken as a commodity different from the rods for the purposes of permitting imposition of sales tax once again on wires despite rods having been subjected to sales tax. While taking such a view, the apex Court has observed as follows :
“6. The above shows complexity of the concept of a different commercial product coming into existence because of manufacturing process undertaken. It is because of this that we do not propose to decide the controversy at hand, which is whether iron wires are separate commercial goods from wire rods from which they are produced, by trying to answer whether they are one commercial commodity or separate, The point has however arisen for consideration because we are concerned with a single point sales tax which would not allow taxing of the same commodity again. It is also not in dispute that if the two goods at hand be different commodities, the single point taxing principle would not debar realisation of tax once again from the sale of wires. Shri Tarkunde’s whole emphasis is that the goods in question cannot be regarded as two different commercial commodities. Let it be seen why this stand has been taken by the learned counsel on behalf of the appellants and whether the same is sound.
7. The stand owes its origin to clubbing together of wire rods and wires in sub-clause (xv) of clause (iv) of section 14 of the Central Sales Tax Act, 1956 (for short ‘the Act’), which deals with what is commonly known as declared goods, in which case section 15 of the Act would come into play which would not permit levying of sales tax at more than one stage on such goods. On the strength of a four-Judge Bench decision of this Court in State of Tamil Nadu v. Pyare Lal Malhotra , it is strongly contended by Shri Tarkunde that wire rods and wires having been mentioned in one sub-item, they have to be treated as one goods and not, two different goods.
8. Pyare Lal’s case being the king pin or sheet anchor of Shri Tarkunde’s submission, we may carefully note as to what was really decided in that case. There, this Court was examining whether steel rounds, flats, plates, etc., were exigible to tax under the provisions of the Tamil Nadu General Sales Tax Act. These products also declared goods, and so, an argument was advanced that the iron scrap from which the goods had been manufactured having suffered sales tax, tax could not be realised once again from the sale of plates, flats, rounds, etc. This Court did not accept the contention but the reason given for rejecting the contention is what is pressed into service by Shri Tarkunde, according to whom, the reason given therein establishes his contention conclusively.
9. As we are concerned with the products of iron and steel, as was Pyare Lal’s case , let the relevant part of section 14 of the Act dealing with it be noted :
’14. Certain goods to be of special importance in inter-State trade or commerce. – It is hereby declared that the following goods are of special importance in inter-State trade or commerce :-
(iv) iron and steel, that is to say ………
(xv) wire rods and wires-rolled, drawn, galvanised, aluminised, tinned or coated such as by copper; ……..’
10. In Pyare Lal’s case , the contention on behalf of the assessee was that steel rounds, flats, plates, etc., were not different commercial commodities because they were products of iron and steel, and so, were not taxable once again, as all the products of iron and steel mentioned in various sub-items of clause (iv) have to be taken as one commodity inasmuch as the Legislature visualised iron and steel as one commodity. It may be stated that at the relevant time (as also now) iron scrap was one of the sub-items; and steel plates, sheets, etc., part of another sub-item, albeit in separate sub-divisions. Assessee’s contention was rejected by this Court by stating that it was not the substance (i.e., iron and steel) which should be taken as an object of taxation, but goods of iron and steel, as otherwise sales tax law itself would undergo a change from being a law which taxes the sale of ‘goods’ to a law which taxes sale of ‘substance’ out of which goods are made. The court also pointed out that steel plates, sheets, etc., formed part of a sub-item different from that of iron scrap. What is sought to be relied on by Shri Tarkunde is the observation at page 171 of the Report (323 of STC) that the amendment which was brought about in item (iv) by 1972 Act following the recommendation of Select Committee was intended to ‘consider each sub-item as a separate taxable commodity for purpose of sales tax’.
11. Our attention is also invited to what has been stated at page 172 (at page 323 of STC)-the same being that each of the sub-category of a sub-item retains its identity as a commercially separate item so long as it retains the sub-division. The argument, therefore, is that goods of one sub-item and in one sub-division have to be taken as one commercial commodity.
12. Before expressing our opinion on the aforesaid submission it would be necessary to note whether any different view in the matter has been taken in the Rajasthan case , which also dealt with the question of as to how products of declared goods have to be taxed. Shri Chari, appearing for the Revenue, contends that in this case this Court held flour, maida and suji derived from wheat as commodities different from wheat, and so, taxable once again, despite wheat having suffered tax, and we should take the same view qua wires. A perusal of this decision shows that the view in question was taken because wheat simpliciter was mentioned as a declared goods in sub-clause (iii) of clause (i) of section 14 of the Act and not wheat products. So this case has not departed from the view taken in Pyare Lal , which had been duly noted in this decision.
13. At this stage, we may note the object behind interdicting multiple-point tax on declared goods which follows from the mandate contained in clause (a) of section 15 of the Act. According to us, the purpose behind this provision is to minimise the tax burden on declared goods because of the special importance of these goods in inter-State trade and commerce.
14. When the attention of the Sales Tax Appellate Tribunal, against whose orders the present appeals have been filed, was drawn to Pyare Lal’s case and the argument noted above was advanced, it observed that the two goods being distinct, the argument was ‘really a camouflaged attempt to by-pass the judgment’. According to us, the Tribunal did not properly understand the decision in Pyare Lal case , which indeed supports the appellants’ case. This is for the reason that Pyare Lal’s case ought to be taken to have accepted that goods of one sub-item should be taken as one taxable commodity. Rajasthan case does not lay down any different proposition.”
In para 17, the apex Court has further observed as follows :
“……. We have retained from going through the exercise of deciding whether wire is a different commercial commodity from rod, because our approach has been different, as we wanted to base our decision not on the touchstone of iron rod and wire being one or separate commercial commodity, having found that these two goods have been clubbed together in sub-item (xv) (supra) which, according to us, made material difference and clinched the issue.”
9. In State of Bihar v. Universal Hydrocarbons Co. Ltd. , the respondent-company purchased raw petroleum coke and subjecting it to a process of manufacture produced calcined petroleum coke and sold the latter in the course of inter-State trade and claimed adjustment of the local sales tax paid on the raw petroleum coke against the Central sales tax on calcined petroleum coke. On a consideration of item (ia) of section 14, the apex Court held that when entry (ia) of section 14 of the Central Sales Tax Act, 1956, said “coke in all its forms”, there was no possibility of bringing coke of different forms except under that entry. Irrespective of the fact that raw petroleum coke lost its original identity or in the process of manufacture calcined petroleum coke was produced, calcined petroleum coke could not be taken out of the purview of that entry. The calcined petroleum coke was only a form of raw petroleum coke and, therefore, the respondent was entitled to reimbursement under section 15(b) of sales tax paid by it on the petroleum coke.
10. In view of the principles laid down by the apex Court in the decisions referred above, we are of the view that when two commercial commodities are included in one and the same sub-item of section 14 of the Central Sales Tax Act, even if they are commercially different commodities, such commodities of the same sub-item of section 14 should be taken as one taxable commodity. Section 15 of the Central Sales Tax Act interdicts multi-point sales tax on declared goods. However, if the declared goods are different commodities falling under different sub-items of section 14, the single point taxation principle would not debar realisation of sales tax once again, even if the material out of which they are made had already been subjected to sales tax .
11. Having regard to the legal position stated above, we see no infirmity in sub-section (2)(b) of section 2-B which says that in computing the taxable turnover of a dealer of transfer of property involved in the execution of works contract he is entitled to deduct all the amounts for which any goods specified in the First or Second Schedule are purchased from registered dealers and used in the execution of works contract in the same form in which such goods were purchased. If the goods purchased by a dealer is a distinct commercial commodity falling under a particular sub-item of section 14 such commodity should be used in the execution of the works contract either in the form in which such goods were purchased or in some other form falling under the very same sub-item of section 14 as the goods purchased, to enable the dealer to get deduction from the total turnover under section 3-B(2)(b). In other words, if the declared goods purchase by the dealer falling under a particular sub-item of section 14 of the Central Sales Tax Act is converted into different commercial commodity which also falls under the very same sub-item like the goods purchased by the dealer, even then, the to claim deduction under section 3-B(2)(b), because the principle is the goods in the same sub-item of section 14 have to be taken as one commercial commodity and not different commodities. In that case, it should be taken that the goods purchased by the dealer are used in the execution of the works contract in the same form in which they were purchased. However if the goods purchased by the dealer fall under one sub-item of section 14 and thereafter it is converted into another distinct commercial commodity falling under a different sub-item of section 14, it cannot be held that the goods purchased by the dealer are used in the execution of works contract in the same form in which such goods were purchased and therefore the dealer cannot claim deduction under section 3-B(2)(b) of the Act. As already pointed out, when two different kinds of goods fall under two different sub-items of section 14 of the Central Sales Tax Act, they are different commercial commodities and in such a case section 15 of the Central Sales Tax Act which prohibits multi-point tax on declared goods will have no application. For example as pointed out by the apex Court in Telangana Steel Industries v. State of Andhra Pradesh [1994] 93 STC 187, when wire rods purchased by the dealer and which has suffered tax is converted into wires and used in the execution of works contract, since both wire rods and wires fall under the same sub-item (xv) of item (iv) of section 14, sales tax cannot be levied again on wires and the dealer can claim deduction under sub-section (2)(b) of section 3-B in respect of all amounts for which the wire rods are purchased. On the other hand, where steel rounds, flats, plates, etc., are manufactured out of iron scrap which has suffered sales tax, and used in the execution of the works contract the goods purchased by the dealer, viz., iron scrap and the goods used by the dealer in the execution of works contract, viz., steel rounds, flats, plates, etc., fall under different sub-items of item (iv) of section 14. Therefore, they are different commodities and the dealer cannot claim deduction under sub-section (2)(b) of section 3-B in respect of amounts for which iron scrap is purchased.
12. The assessing authorities under the Act, while computing the taxable turnover of a dealer under Sub-section (2)(b) of section 3-B of the Act in individual cases, are bound to bear in mind the above principles laid down by the Supreme Court in Pyare Lal’s case [1976] 37 STC 319 and Telangana Steel Industries case [1994] 93 STC 187 and what we have said in the preceding paras 10 and 11. For all the reasons stated above, we have no hesitation in holding that the condition prescribed by section 3-B(2)(b), that in order to claim deduction from the total turnover in respect of the amounts for which the goods specified under First or Second Schedule are purchased, such goods must he used in the execution of the works contract in the same form in which they were purchased, will not result in levying sales tax at more than one stage contravening section 15(a) of the Central Sales Tax Act and article 286(3) of the Constitution and on that ground section 3-B is not liable to be struck down. Point No. 1 is answered accordingly.
Point No. 2 :
13. According to sub-section (2)(b) of section 3-B, of the Act in calculating the taxable turnover of a dealer of transfer of property involved in the execution of the works contract, he is entitled to deduction from the total turnover of amounts for which any goods specified in the First or Second Schedule are purchased from registered dealers liable to pay tax under the Act and used in the execution of works contract. Section 20 of the Act deals with the registration of dealers. Under section 20 of the Act as it originally stood, dealers having total turnover of not less than Rs. 75,000 were bound to register as dealers. Regarding First and Second Schedule (declared goods), under section 20(1), registration was compulsory till May 28, 1993 irrespective of turnover limit. From May 28, 1993 onwards, by Act 25 of 1993, section 20(2)(i) was omitted. Consequently, even in respect of First and Second Scheduled goods, only on reaching a total turnover of Rs. 75,000 a dealer is required to register himself as a dealer.
14. Under section 20(1)(b) effective from January 1, 1987 under Act 79 of 1986 in the case of works contract, registration was compulsory wherever the total turnover exceeded Rs. 40,000. With effect from May 28, 1993 by Act 25 of 1993, registration for works contract is also on par with other dealers, i.e., on a works contractor reaching a total turnover of not less than Rs. 75,000 alone is bound to register himself as a dealer.
15. The turnover limit for purposes of charge under the various charging provision is, however, different. Regarding section 3(1), the tax liability starts only on reaching a total turnover of Rs. 1,00,000. There is no turnover limit for casual dealers either for charge, so also for registration.
16. In respect of First Schedule goods taxable under section 3(2) of the Act, prior to May 28, 1993, every sale was liable to tax. After May 28, 1993, the liability is as under section 3(1), starts only on reaching the total turnover of Rs. 1,00,000.
17. In respect of declared goods prior to May 28, 1993, irrespective of turnover limit, every sale was liable to tax and after May 28, 1993 as in section 3(1), only on reaching a total turnover of Rs. 1,00,000, the sale of declared goods is taxable.
18. Regarding works contract prior to May 28, 1993, under section 3-B, tax liability arose on reaching a total turnover of Rs. 50,000 and after the Act 25 of 1993 with effect from March 12, 1993, the liability to tax arises only on reaching the total turnover of Rs. 1,00,000 as given under section 3(1).
19. The submission of Mr. C. Natarajan, learned counsel for the appellants, is that the condition prescribed in sub-section (2)(b) that in order to claim deduction from the total turnover in respect of the amounts for which the goods specified in the First or Second Schedule are purchased, such goods must be purchased from the registered dealers liable to pay tax under the Act, will result in levying tax at more than one stage contravening section 15(a) of the Central Sales Tax Act and therefore section 3-B of the Act is invalid. However, we are unable to accept the above contention of the learned counsel for the appellant. We must point out that section 3-B(1) of the Act contains charging provision and it says every dealer referred to in item (vi) of clause (g) of section 2 shall pay for each year a tax on his taxable turnover of transfer of property in goods involved in the execution of works contract at the rates mentioned in sub-section (2) of section 3 or as the case may be in section 4. On the other hand sub-section (2) of section 3-B is the machinery provision prescribing the mode of computation of taxable turnover for the purposes of works contract. Sub-section (2)(b) of section 3-B says that a dealer is entitled to get deduction under that section only when the goods specified in the First or Second Schedule are purchased from registered dealers liable to pay tax under the Act and used in the execution of the works contract. Sub-section (2)(b) of section 3-B prescribes the rule of evidence as regards the goods falling under the First and Second Schedules which are used in the execution of works contract. Inasmuch as sub-section (2)(b) of section 3-B regulates the burden of proof, wherever the assessee wants deduction in the computation of taxable turnover, he is bound to comply with the provisions contained in sub-section (2)(b) of section 3-B. As rightly contended by the learned Additional Government Pleader (Taxes), insistence of the proof of purchase from registered dealer liable to pay tax under the Act is aimed at achieving the two fold objects, viz., prevention of fraud and evasion and facilitating the administrative efficiency. In Kedamath Jute Manufacturing Co. Ltd. v. Commercial Tax Officer [1965] 16 STC 607, the apex Court dealing with the section 5(2)(a)(ii) of the Bengal Finance (Sales Tax) Act, 1941, held that where a dealer claims exemption in regard to sales to a registered dealer, the furnishing of the declaration forms under section 5(2)(a)(ii) of the Bengal Finance (Sales Tax) Act, 1941, issued by the purchasing dealer, is a condition precedent for claiming the exemption. The dealer has to strictly comply with the provision and cannot produce other evidence to prove that the sales to the registered dealers were for the purposed in the sub-clause. The dealer cannot get the exemption unless he furnishes the declaration in the prescribed form. In the above decision, the apex Court explained the reason for the stringency of the provision in section 5(2)(a)(ii) of the Bengal Finance (Sales Tax) Act, 1541, in the following terms :
“There is an understandable reason for the stringency of the provisions. The object of section 5(2)(a)(ii) of the Act and the rules made thereunder is self-evident. While they are obviously intended to give exemption to a dealer in respect of sales to registered dealers of specified classes of goods, it seeks also to prevent fraud and collusion in an attempt to evade tax. In the nature of things, in view of innumerable transactions that may be entered into between dealers, it will well nigh be impossible for the taxing authorities to ascertain in each case whether a dealer has sold the specified goods to another for the purposes mentioned in the section. Therefore, presumably to achieve the two-fold object, namely, prevention of fraud and facilitating administrative efficiency, the exemption given is made subject to a condition that the person claiming the exemption shall furnish a declaration form in the manner prescribed under the section. The liberal construction suggested will facilitate the commission of fraud and introduce administrative inconveniences, both of which the provisions of the said clause seek to avoid.”
20. Under sub-section (2)(b) of section 3-B, the requirement is that, in order to claim deduction under the said sub-section, the dealer must prove that the purchases made by him in respect of the goods specified in the First or Second Schedule are from registered dealers liable to pay tax. We are of the view that the failure to discharge the burden cast on the dealer under sub-section (2)(b) of section 3-B does not result in the point of taxation being shifted. It merely provides for collection of tax from the assessee. In Bhawani Cotton Mills Ltd. v. State of Punjab , which is strongly relied upon by Shri C. Natarajan, learned counsel for the appellants, in support of his contention, the validity of section 5(2)(a)(vi) of the Punjab General Sales Tax Act was questioned. The said provision related to the liability of the dealers dealing in the declared goods. It provided that the purchase turnover of declared goods which were sold not later than six months after the close of the year to a registered dealer or in the course of inter-State trade or in the course of export out of the territory of India, should be excluded from the turnover. In other words, wherever the goods in question were sold after six months, the turnover in respect of them became liable to payment of tax. Similarly a person who purchased the goods from a dealer after six months from the date of his purchase, would also be liable to pay purchase tax if he sold the goods after six months from the close of the succeeding year. The Punjab General Sales Tax Act, apart from making the above provision, did not say with definite precision at what stage the tax had to be levied although it provided that the tax should be levied at only one point. It was contended on behalf of the assessee that in single point taxation, it was necessary that the Legislature should lay down in clear and unequivocal terms the point or the stage at which the tax should be levied and that it should also make provision to ensure that the turnover in respect of the declared goods did not suffer taxation at more than one point.
On an interpretation of the relevant provisions of the Punjab Act, the Supreme Court was of the view that if a person did not dispose of the goods bought by him within a period of six months, there was every possibility of the turnover in respect of the goods being subjected to sales tax even though under similar circumstances they had suffered tax earlier in the hands of another dealer. In that view of the matter, the Supreme Court was of the opinion that the impugned provisions did not effectively prevent the contravention of section 15(a) of the Central Sales Tax Act. Relying upon the decision, it is contended by Shri C. Natarajan that by reason of sub-section (2)(b) of section 3-B of the Act, there is every possibility of the declared goods suffering tax at more than one point. The above decision of the apex Court in Bhawani Cotton Mills case [1967] 20 STC 290 is clearly distinguishable. In Bhawani Cotton Mills case [1967] 20 STC 290, the Supreme Court was concerned with section 5(2)(a)(vi) of the Punjab General Sales Tax Act, which is charging section but not with a machinery provision as in the present case. In Sha Pannalal Pemraj & Co. v. Commercial Tax Officer [1975] 35 STC 109, the Karnataka High Court after pointing out that the decision of the Supreme Court in Bhawani Cotton Mills case [1967] 20 STC 290 will not apply to a case where the court is concerned with a machinery provision, observed as follows :
“……. It is no doubt true that ordinarily the burden of establishing the liability under a fiscal statute is on the revenue. It is however open to the Legislature in appropriate cases, in order to avoid evasion of the tax, to place the burden on the assessee himself. When once such a provision passes the test of constitutionality, then it would not be open to the assessee to contend that his liability should not be assessed on the basis of the rule of evidence laid down by the statute. It may be that in certain rare cases, there is a remote possibility of the transaction in respect of the same goods suffering tax more than once on account of paucity of proof. That however would not invalidate either the charging section or the rule of evidence indicated by the Legislature.”
21. If the dealer of transfer of property involved in the execution of works contract wants deduction on from his total turnover, in respect of all amounts for which any goods specified in the First or Second Schedule are purchased, he can do so by purchasing the goods from registered dealers liable to pay tax. The only thing required is that the dealer should be diligent enough to purchase the goods from registered dealers and prove the same before the authorities under the Act. As pointed out by the Supreme Court in Rattan Lal and Co. v. Assessing Authority [1970] 25 STC 136, in the context of section 15 of the Central Sales Tax Act, the law does not take into account the actions of persons who are negligent or mistaken, but only of person who act correctly according to law.
22. In Srinivasa Traders v. Commercial Tax Officer [1985] 58 STC 343, a Division Bench of the Karnataka High Court took the view that section 6-A(2) of the Karnataka Sales Tax Act was not a charging section, but only a machinery provision which regulated the burden of proof or mode of proof and therefore, the said section 6-A(2) did not contravene section 15 of the Central Sales Tax Act.
22-A. The requirement of sub-section (2)(b) of section 3-B of the Act that the dealer must prove that the declared goods are purchased from registered dealers liable to tax is necessary in order to fix the identity of the antecedent seller which is possible only when the dealers are registered dealers. As already pointed out, the insistence of proof of purchase from registered dealers by sub-section (2)(b) of section 3-B does not result in the shift in the point of taxation or taxing at more than one stage. The reason is the price charged from such assessee by the antecedent seller would normally take into account sales tax on such sales to be paid by the works contractor to the seller. Further, in the case of declared goods, wherever the proof was not forthcoming from the assessee to show that the anterior sale was a taxable sale and hence the sale by the assessee was held to be a taxable sale, the courts have taken the view that there was no shift in the point of taxation. [Vide [1982] 49 STC 147 (MP) (Commissioner of Sales Tax v. Bansal Brothers), [1987] 66 STC 358 (Mad.) (Vasu General Traders v. State of Tamil Nadu) and [1995] 96 STC 60 (Mad.) (Heat Transfer Developments v. State of Tamil Nadu). Under these circumstances, we are of the view that there is no shifting of the charge or taxing at more than one stage violating section 15 of the Central Sales Tax Act when sub-section (2)(b) of section 3-B insists proof of purchase of goods from registered dealers liable to pay tax. For all the reasons, stated above, we are of the view that the condition prescribed in sub-section (2)(b) of section 3-B that in order to claim deduction from the total turnover in respect of the amounts for which the goods specified in First or Second Schedule are purchased, such goods must be purchased from registered dealers liable to pay tax, will not result in levying tax at more than one stage, contravening section 15(a) of the Central Sales Tax Act. Point No. 2 is answered accordingly.
Point Nos. 3 and 4 :
23. The contention of the learned counsel for the appellants is that sub-section (2)(b) of section 3-B provides for the deduction only of the amounts for which the goods specified in First or Second Schedule, are purchased from the total turnover of a dealer, for the purpose of calculating the taxable turnover, that as a result, the value of the goods at the time of transfer and the profit margin are ignored and they get added to the taxable turnover. The learned counsel for the appellants also contended that sub-section (2)(e) of section 3-B is invalid because the said sub-section limits the expenses towards “labour charges and other like charges” to the actual cost as evident from the expressions “actually incurred in connection with the execution of works contract” used in sub-section (2)(e) of section 3-B. Thus, according to the learned counsel for the appellants, sub-section (2)(e) also does not provide for the exclusion of profit margin of the contractor in providing services and therefore, sub-sections (2)(b) and (2)(e) of section 3-B are invalid. On the other hand, the contention of the learned Additional Government Pleader (Taxes) is that sub-section (2)(b) of section 3-B provides for exclusion of amounts for which the goods specified in First or Second Schedule are purchased and used in the execution of works contracts and that the said sub-section (2)(b) seeks to take the transfer value alone which Means cost plus profit and not the cost price and that the said sub-section (2)(b) is in consonance with the decision of the Supreme Court in Gannon Dunkerley & Co. v. State of Rajasthan [1993] 88 STC 204.
24. In Gannon Dunkerley & Co. v. State of Rajasthan [1993] 88 STC 204, the apex Court had occasion to deal with the question what is the measure for the levy of tax contemplated by article 366(29-A) of the Constitution of India. Dealing with the said question, the apex Court held that the value of the goods involved in the execution of the works contract may be arrived at by reducing from the value of the works contract, expenses incurred on labour and other services. The apex Court dealing with the question of profits, held that the profits which are relatable to the supply of materials can be included in the value of the goods and the profits which are relatable to supply of labour and services will have to be excluded. Therefore, the value of the goods involved in the execution of the works contract have to be determined by taking into account the value of the entire works contract and deducting therefrom the charges towards labour and services which would cover among other things the profits earned by the contractor to the extent it is relatable to supply of labour and services. The Supreme Court in the decision referred to above, dealing with the above aspect of measure of tax has held as follows :
Measure of tax :
On behalf of the contractors, it has been urged that under a law imposing a tax on the transfer of property in goods involved in the execution of a works contract under entry 54 of the State List read with article 366(29-A)(b), the tax is imposed on the goods which are involved in the execution of a works contract and the measure for levying such a tax can only be the value of the goods so involved and the value of the works contract cannot be made the measure for levying the tax. The submission is further that the value of such goods would be the cost of acquisition of the goods by the contractor and, therefore, the measure for levy of tax can only be the cost at which the goods involved in the execution of a works contract were obtained by the contractor. On behalf of the Statues, it has been submitted that since the property in goods which are involved in the execution of a works contract passes only when the goods are incorporated in the works, the measure for the levy of the tax would be the value of the goods at the time of their incorporation in the works as well as the cost of incorporation of the goods in the works. We are in agreement with the submission that measure for the levy of the tax contemplated by article 366(29-A)(b) is the value of the goods involved in the execution of a works contract. In Builders Association case it has been pointed out that in article 366(29-A)(b), the emphasis is on the transfer of property in goods (whether as goods or in some other form) (page 396 of STC; 347 of SCR). This indicates that though the tax is imposed on the transfer of property in goods involved in the execution of a works contract, the measure for levy of such imposition is the value of the goods involved in the execution of a works contract. We are, however, unable to agree with the contention urged on behalf the contractors that the value of such goods for levying the tax can be assessed only on the basis of the cost of acquisition of the goods by the contractor. Since the taxable event is the transfer of property in goods involved in the execution of a works contract and the said transfer of property in such goods takes place when the goods are incorporated in the works, the value of the goods which can constitute the measure for the levy of the tax has to be the value of the goods at the time of incorporation of the goods in the works and not the cost of acquisition of the goods by the contractor. We are also unable to accept the contention urged on behalf of the States that in addition to the value of the goods involved in the execution of the works contract the cost of incorporation of the goods in the works can be included in the measure for levy of tax. Incorporation of the goods in the contract relating to work and labour which is distinct from the contract for transfer of property in goods and, therefore, the cost of incorporation of the goods in the works cannot be made a part of the measure for levy of tax contemplated by article 366(29-A)(b).
With regard to the determination of the value of the goods which are involved in the execution of a works contract the submission of the learned counsel appearing for the State is that a more convenient mode for such determination is to take the value of the works contract as a whole and deduct therefrom the cost of labour and services rendered by the contractor during the course of execution of the works contract. The submission of the learned counsel is that this mode would prevent evasion of tax. The learned counsel for the contractors have submitted that in that event the following deductions should be made from the value of the entire contract in order to arrive at the value of the goods involved in the execution of a works contract :
(i) labour charges for execution of the works;
(ii) amounts paid to a sub-contractor for labour and services;
(iii) charges for planning, designing and architect’s fees;
(iv) charges for obtaining on hire the machinery and tools used in the execution of the works contract;
(v) cost of consumables such as water, electricity, fuel, etc.
(vi) transportation charges for transport of goods to the place of works;
(vii) overhead expenses of the head office and branch office including rents, salary, electricity, telephone charges, etc., and interest charges to banks and financial institutions;
(viii) profits expected on such contract.
Keeping in view the legal fiction introduced by the Forty-sixth Amendment whereby the works contract which was entire and indivisible has been altered into a contract which is divisible into one for sale of goods and other for supply of labour and services, the value of the goods involved in the execution of a works contract on which tax is leviable must exclude the charges which appertain to the contract for supply of labour and services. This would mean that labour charges for execution of works [item No. (i)], amounts paid to a sub-contractor for labour and services [item No. (ii)], charges for planning designing and architect’s fees [item No. (iii)], charges for obtaining on hire or otherwise machinery and tools used in the execution of a works contract [item No. (iv)], and the cost of consumables such as water, electricity, fuel, etc., which are consumed in the process of execution of a works contract [item No. (v)] and other similar expenses for labour and services will have to be excluded as charges for supply of labour and services. The charges mentioned in [item No. (vi)] cannot, however, be excluded. The position of a contractor in relation to a transfer of property in goods in the execution of a works contract is not different from that of a dealer in goods who is liable to pay sales tax on the sale price charged by him from the customer for the goods sold. The said price includes the cost of bringing the goods to the place of sale. Similarly, for the purpose of ascertaining the value of goods which are involved in the execution of a works contract for the purpose of imposition of tax, the cost of transportation of the goods to the place of works has to be taken as part of the value of the said goods. The charges mentioned in item No. (vii) relate to the various expenses which form part of the cost of establishment of the contractor. Ordinarily the cost of establishment is included in the sale price charged by a dealer from the customer for the goods sold. Since a composite works contract involves supply of materials as well as supply of labour and services, the cost of establishment of the contractor would have to be apportioned between the part of the contract involving supply of materials and the part involving supply of labour and services. The cost of establishment of the contractor which is relatable to supply of labour and services cannot be included in the value of the goods involved in the execution of a contract and the cost of establishment which is relatable to supply of material involved in the execution of the works contract only can be included in the value of the goods. Similar apportionment will have to be made in respect of item No. (viii) relating to profits. The profits which are relatable to the supply of materials can be included in the value of the goods and the profits which are relatable to supply of labour and services will have to he excluded. This means that in respect of charges mentioned in items Nos. (vii) and (viii), the cost of establishment of the contractor as well as the profit earned by him to the extent the same are relatable to supply of labour and services will have to be excluded. The amounts so deductible would have to be determined in the light of the facts of a particular case on the basis of the material produced by the contractor. The value of the goods involved in the execution of a works contract will, therefore, have to he determined by taking into account the value of the entire works contract and deducting therefrom the charges towards labour and services which would cover :
(a) labour charges for execution of the works;
(b) amount paid to a sub-contractor for labour and services;
(c) charges for planning, designing and architect’s fees;
(d) charges for obtaining on hire or otherwise machinery and tools used for the execution of the works contract;
(e) cost of consumables such as water, electricity, fuel, etc., used in the execution of the works contract the property in which is not transferred in the course of execution of a works contract; and
(f) cost of establishment of the contractor to the extent it is relatable to supply of labour and services;
(g) other similar expenses relatable to supply of labour and services; and
(h) profit earned by the contractor to the extent it is relatable to supply of labour and services.
The amounts deductible under these beads will have to be determined in the light of the facts of a particular case on the basis, of the material produced by the contractor.
We may, however, make it clear that apart from the deductions referred to above, it will be necessary to exclude from the value of the works contract the value of the goods which are not taxable in view of sections 3, 4 and 5 of the Central Sales Tax Act and goods covered by sections 14 and 15 of the Central Sales Tax Act as well as goods which are exempt from tax under the sales tax legislation of the State. The value of goods involved in the execution of a works contract will have to be determined after making these deductions and exclusions from the value of the works contract.
Normally, the contractor will be in a position to furnish the necessary material to establish the expenses that were incurred under the aforesaid heads of deduction for labour and services. But there may be cases where the contractor has not maintained proper accounts or the accounts maintained by him are not found to be worthy of credence by the assessing authority. In that event, a question would arise as to how the deduction towards the aforesaid heads may be made. On behalf of the States, it has been urged that it would be permissible for the State to prescribe a formula on the basis of a fixed percentage of the value of the contract as expenses towards labour and services and the same may be deducted from the value of the works contract and that the said formula need not be uniform for all works contracts and may depend on the nature of the works contract. We find merit in this submission. In cases where the contractor does not maintain proper accounts or the accounts maintained by him are not found worthy of credence it would. In our view be Permissible for the State Legislature to prescribe a formula for determining the charges for labour and services. by fixing a particular percentage of the value of the works contract and to allow deduction of the amount thus determined from the value of the works contract for the purpose of determining the value of the goods involved in the execution of the works contract. It must, however, be ensured that the amount deductible under the formula that is prescribed for deduction towards charges for labour and services does not differ appreciably from the expenses for labour and services that would be incurred in normal circumstances in respect of that particular type of works contract. Since the expenses for labour and services would depend on the nature of the works contract and would not be the same for all types of works contracts, it would be permissible, indeed necessary, to prescribe varying scales for deduction on account of cost of labour and services for various types of works contracts.”
25. In Builders’ Association of India v. State of Karnataka [1993] 88 STC 248, the Supreme Court had occasion to examine the constitutional validity of the various provisions of the Karnataka Sales Tax Act and the Rules framed thereunder, dealing with deduction of expenses such as labour charges, etc. The apex Court while upholding the constitutional validity of the deduction provisions of the Karnataka Sales Tax Act, 1957 and the Rules framed thereunder held as follows :
“……. From these provisions, it is evident that the tax is not levied on the value of the works contract and that the taxable turnover on which tax is leviable is arrived at after deducting from the value of the works contract the expenses which are incurred by the contractor towards labour charges and other expenses, including amounts paid to sub-contractors. The expression ‘labour charges’ in sub-clause (ii) of clause (m) and the expression ‘labour charges and other like charges’ in sub-clause (iv) of clause (n) are, in our opinion, wide enough to include the charges for labour and services, as indicated by us in our judgment in Gannon Dunkerley and Co. v. State of Rajasthan supra to which reference has been made earlier. It cannot, therefore, be said that section 5-B provides for levy of tax not on the value of the goods involved in the execution of a works contract but also on something which is not part of that value.”
26. On a careful examination of sub-section (2)(b) of section 3-B, we are of the view that the expressions “all amounts for which any goods specified in First or Second Schedule are purchased” found in that sub-section will take in the transfer value of the goods which means cost of the goods plus profit and not cost price alone as contended by the learned counsel for the appellants, and therefore, the provision in sub-section (2)(b) does not run counter to the principles laid down by the Supreme Court in Gannon Dunkerley & Co. v. State of Rajasthan [1993] 88 STC 204, but it is in accordance with the principles laid down by the apex Court in Gannon Dunkerley’s case [1993] 88 STC 204. Therefore, there is no merit in the contention of the learned counsel for the appellants that sub-section (2)(b) of section 3-B provides deduction of only the amounts for which the goods specified in the First or Second Schedule are purchased, that the value of the goods at the time of transfer is ignored resulting in the profit margin and the transfer value of the goods getting added to the taxable turnover and on that ground sub-section (2)(b) is invalid. Accordingly, we reject the said contention of the learned counsel for the appellants.
27. The next question we have to examine is the question regarding the validity of sub-section (2)(e) of section 3-B of the Act. Sub-section (2)(e) says that in computing the taxable turnover of a dealer for the purpose of levy of tax under section 3-B(1), the dealer is entitled to get deduction in respect of all amounts towards labour charges and other like charges not involving in transfer of property in goods, actually incurred in connection with the execution of works contract. The apex Court in Gannon Dunkerley’s case [1993] 88 STC 204 has held that the measure for levy of the tax contemplated by article 366(29-A) of the Constitution, is the value of the goods involved in the execution of works contract and the value of the goods involved in the execution of the works contract will have to be determined by taking into account the value of the entire works contract and deducting therefrom the charges towards labour and services which would cover : (a) labour charges for execution of the works; (b) amount paid to a sub-contractor for labour and services; (c) charges for planning, designing and architect’s fees; (d) charges for obtaining on hire or otherwise machinery and tools used for the execution of the works contract; (e) cost of consumables such as water, electricity, fuel, etc., used in the execution of the works contract the property in which is not transferred in the course of execution of a works contract; (f) cost of establishment of the contractor to the extent it is relatable to supply of labour and services; (g) other similar expenses relatable to supply of labour and services; and (h) profit earned by the contractor to the extent it is relatable to supply of labour and services.
From the decision of the apex Court in Gannon Dunkerley’s case [1993] 88 STC 204, it is clear that the expression “labour charges and other like charges” found in sub-section (2)(e) will take in not only the labour and the other like charges actually incurred in connection with the execution of the works contract, but also the profit earned by the contractor to the extent it is relatable to supply of labour and services. Therefore, under sub-section (2)(e) of section 3-B, the profit margin of the contractor to the extent it is relatable to the supply of labour and services has to be excluded in calculating the taxable turnover of the dealer for the purposes of levying of tax under section 3-B(1) of the Act.
28. As pointed out by the Supreme Court in Gannon Dunkerley’s case [1993] 88 STC 204, the amount deductible under the various heads under the various sub-clauses of sub-section (2) of section 3-B will have to be determine in the light of the facts of a particular case on the basis of the material produced by the contractor.
29. In this context, we must also point out that the provisions contained in section 3-B of the Act, particularly the deduction provisions contained in sub-section (2) of section 3-B of the Act are more or less similar to the provisions contained in the Karnataka Sales Tax Act, 1957 and that the apex Court has upheld the validity of the similar provisions of the Karnataka Act in Builders’ Association of India v. State of Karnataka [1993] 88 STC 248. Further, we are of the view that the provisions contained in section 3-B particularly, the deduction provisions contained in sub-section (2)(b) of section 3-B are quite in accordance with the principles laid down by the Supreme Court in Gannon Dunkerley’s case [1993] 88 STC 204 and the Builders’ Association case [1993] 88 STC 248. In these circumstances, we are of the view that the sub-sections (2)(b) and (2)(e) of section 3-B of the Act are perfectly valid and we reject the contention of the learned counsel for the appellant that section 3-B is invalid because sub-section (2) (e) limits the expenses towards labour charges and other like charges only to the actual charges incurred in connection with the execution of the works contract without providing for the inclusion of the profit margin of the contractor. Accordingly, the questions raised in points Nos. 3 and 4 are answered in the negative.
Point No. 5 :
30. The contention of Mr. V. Ramachandran, learned senior counsel for the appellant in W.A. No. 1093 of 1994 is that the members of the appellant-association in the said writ appeal are doing job-work in printing, that the ink used in the course of the printing work is consumed in the execution of the works contract of printing and therefore the cost of the ink which is consumed in the execution of the works contract would come under the expression, “the labour charges and other like charges not involving any transfer of property in goods” occurring in sub-section (2)(e) of section 3-B and therefore, the ink used in the execution of the works contract being a consumable item, the cost of the ink must be deducted from the total turnover of the dealer for the purposes of levying of tax under section 3-B(1) of the Act. Similarly, Mr. K. J. Chandran, learned counsel for the appellant in W.A. No. 1467 of 1994 submitted that the members of the appellant-association in that appeal are doing job-work in dyeing, that the dyes used in the works contract of dyeing is consumed in the course of execution of the works contract of dyeing and therefore, the dyes being a consumable item fall within the purview of the expressions “labour charges and other charges not involving transfer of property in goods” and therefore, the cost of the dyes used in the execution of works contract must be deducted under sub-section (2)(e) of section 3-B in calculating the taxable turnover of the dealer for the purposes of levying under section 3-B(1) of the Act. On the other hand, learned Additional Government Pleader (Taxes) relying on the decisions reported in [1993] 91 STC 504 (sic) and [1991] 83 STC 420 (Mad.) (State of Tamil Nadu v. Everest Copiers), contended that printing or dyeing as the case may be results in the transfer of property in goods by the principle of accretion and therefore, the ink used in printing in the execution of the works contract and the dyes used for the purpose of dyeing in the execution of the works contract are taxable under the provisions of the Act.
31. The apex Court in Gannon Dunkerley’s case [1993] 88 STC 204, has held that the tax on transfer of property in goods (whether as goods or in some other form) involved in the execution of works contract falling within the ambit of article 366(29-A)(b) is leviable on the goods involved in the execution of a works contract and the value of the goods which are involved in the execution of the works contract would constitute the measure for imposition of the tax. The apex Court further held that the value of the goods involved in the execution of the works contract will have to be determined by taking into account the value of the entire works contract after deducting therefrom the charges towards labour and services which would cover among other things cost of consumables such as water, electricity and fuel, etc., used in the execution of the works contract, the property in which is not transferred in the course of execution of the works contract. In view of the above decision of the apex Court, it has to be held that the cost of the consumables used in the execution of works contract, the property in which is not transferred in the course of the execution of the works contract, will certainly come within the purview of “labour charges and other like charges” contemplated under sub-section (2)(e) of section 3-B of the Act. Therefore, such cost of consumables has to be excluded from the total turnover of a dealer in calculating the taxable turnover for the purposes of levy of tax under section 3-B(1) of the Act.
32. The next question we have to examine is whether the ink used in the execution of the printing works contract or the dyes used in the execution of dyeing works contract are consumable items such as water, electricity, fuel, etc., used in the execution of works contract, the property in which is not transferred in the course of execution of a works contract. In these proceedings, under article 226 of the Constitution wherein the appellants and the writ petitioners only challenge the validity of section 3-B of the Act, it is not necessary for this Court to go into the question whether the ink or the dyes used in the execution of the works contract is a consumable item and render a decision one way or the other. Such a decision by us is not at all necessary to dispose of the writ appeals. Further, it is not at all possible for us to decide the said question with the materials available before us. It is seen from the order of the learned single Judge under appeal, such a point was never urged before the learned single Judge who heard and disposed of the batch of writ petitions. Again, the question whether the ink or the dye is a consumable item, has to be decided by the departmental authorities who are empowered to adjudicate all such issues under the provisions of the Act in the course of the assessment proceedings, on the basis of the materials placed before them by the assessees. It is open to the assessees/appellants to raise the contention before the assessing authorities that the ink or the dyes as the case may be used in the execution of the works contract is a consumable item and claim deduction under sub-section (2)(e) of section 3-B of the Act. It is for the assessing authority on the basis of the materials produced before them to decide the said question whether the ink or the dyes used in the execution of the works contract is a consumable item. If the appellant is not satisfied by the decision of the assessing authority, he has a right of appeal to the Appellate Assistant Commissioner and further appeal to the Tribunal and finally it is open to the appellant to approach this Court by way of tax revision case under section 38 of the Act. Therefore, we leave open the question whether the ink or the dyes used in the execution of the works contract is a consumable item, for the decision of the departmental authorities. Point No. 5 is answered accordingly.
33. We must also place on record the last of the submissions made by the learned Additional Government Pleader for Taxes in response to the argument of the learned counsel for the appellants that whatever the concessional rates of sales tax available under the notification issued under section 17(2) of the Act will also be available in respect of deemed sales as per the terms of the notification.
34. For all the reasons stated above and subject to the findings recorded in paras 10, 11, 12, 26 to 28 and 32 we have no hesitation in holding that the various provisions contained in section 3-B of the Act are perfectly valid and they are not liable to be struck down and the same are declared as valid. The order of the learned single Judge stands modified accordingly. The writ appeals and writ petitions are dismissed subject to the findings recorded in paras 10, 11, 12, 26 to 28, 32 and 33 above. No costs.
35. Such of those appellants and writ petitioners, who have not preferred appeals against the assessment orders and also not filed objections to the notice, are granted thirty (30) days’ time from today to prefer appeals and objections, as the case may be. In such event, the appeals and objections shall be decided, without going into the question of limitation and in accordance with law.
36. Writ appeals and writ petitions dismissed.