{"id":222191,"date":"2002-05-07T00:00:00","date_gmt":"2002-05-06T18:30:00","guid":{"rendered":"https:\/\/www.legalindia.com\/judgments\/ms-mycon-construction-limited-vs-state-of-karnataka-anr-on-7-may-2002"},"modified":"2015-09-04T10:43:40","modified_gmt":"2015-09-04T05:13:40","slug":"ms-mycon-construction-limited-vs-state-of-karnataka-anr-on-7-may-2002","status":"publish","type":"post","link":"https:\/\/www.legalindia.com\/judgments\/ms-mycon-construction-limited-vs-state-of-karnataka-anr-on-7-may-2002","title":{"rendered":"M\/S. Mycon Construction Limited vs State Of Karnataka & Anr on 7 May, 2002"},"content":{"rendered":"
Supreme Court of India<\/div>\n
M\/S. Mycon Construction Limited vs State Of Karnataka & Anr on 7 May, 2002<\/div>\n
Author: B P Singh<\/div>\n
Bench: Shivaraj V. Patil, Bisheshwar Prasad Singh<\/div>\n
           CASE NO.:\nAppeal (civil) 902  of  1999\n\n\n\nPETITIONER:\nM\/S. MYCON CONSTRUCTION LIMITED\n\n\tVs.\n\nRESPONDENT:\nSTATE OF KARNATAKA & ANR.\n\nDATE OF JUDGMENT:\t07\/05\/2002\n\nBENCH:\nShivaraj V. Patil & Bisheshwar Prasad Singh\n\n\n\n\nJUDGMENT:\n<\/pre>\n
WITH
\nC.A.Nos. 7575-77\/1999, C.A.Nos. 950-957\/2000<\/p>\n
AND<\/p>\n
C.A. Nos.1111\/2000<\/p>\n
J U D G M E N T<\/p>\n
Bisheshwar Prasad Singh, J.\n<\/p>\n
In this batch of appeals by special leave common questions
\narise for consideration and therefore the appeals have been heard
\ntogether and are being disposed of by this common judgment.
\nThe questions which arise for consideration are whether sub-
\nsection 6 of Section 17 of the Karnataka Sales Tax Act, 1957
\n(hereinafter referred to as “the Act”) as amended by Act No. 5 of 1996
\nis unconstitutional, and secondly,  whether the amendment brought in
\nClause (i) of sub-section 6 of Section 17 of the Act by Act No.7 of
\n1997 retrospectively is also unconstitutional.\tThe High Court of
\nKarnataka has answered both these questions in the negative and
\nagainst the appellants.\t The main judgment was rendered in the writ
\npetition preferred by the appellant in Civil Appeal No.902 of 1999.
\nThe remaining matters were disposed of by the High Court following
\nthe aforesaid judgment.\n<\/p>\n
To determine the questions that arise for consideration, it is
\nnecessary to notice  the legislative history of sub-section 6 of section
\n17 of the Act.\tWe may first notice Section 5B of the Act which
\nprovides for levy of tax on transfer of property in goods involved in
\nthe execution of works contract which reads as follows:-\n<\/p>\n
“5-B. Levy of tax on transfer of property in goods
\n(whether as goods or in some other form) involved
\nin the execution of works contracts.\n<\/p>\n
Notwithstanding anything contained in sub-section
\n(1) or sub-section (3) or sub-section (3-C) of
\nSection 5, but subject to sub-section (4), (5) or (6)
\nof the said Section, every dealer shall pay for each
\nyear, a tax under this Act on his taxable turnover
\nof transfer of property in goods (whether as goods
\nor in some other form) involved in the execution of
\nworks contract mentioned in column (2) of the
\nSixth Schedule at the rates specified in the
\ncorresponding entries in column (3) of the said
\nSchedule.”\n<\/p>\n
Section 5B was introduced in the Act by Act No.27 of 1985
\nwith effect from April 1, 1986 pursuant to the Constitution (46th
\nAmendment Act, 1982) introducing  Clause (29 A) in Article 366 of
\nthe Constitution.\n<\/p>\n
By Act 4 of 1987 sub-section 6 of Section 17 of the Act was
\nincorporated which as originally enacted read as follows :-\n<\/p>\n
” Notwithstanding anything contained in sub-
\nsection (1) to (3), subject to such conditions and in
\nsuch circumstances as may be prescribed, the
\nAssessing Authority of the area may, if a dealer
\nliable to tax under Section 5-B so elects, accept in
\nlieu of the amount of tax payable by him during
\nany year, under this Act, in respect of works
\ncontracts falling under serial number 6 of the Sixth
\nSchedule, by way of composition, an amount at the
\nrate of Two percent of his total turnover in respect
\nof transfer of property in goods (whether as goods
\nor in some other form) involved\t in the execution
\nof such works-contracts.”\n<\/p>\n
Sub-section 6 of Section 17 of the Act was amended by Act
\nNo.4 of 1992 with effect from April 1, 1992 and the amended sub-
\nsection\t read as follows :-\n<\/p>\n
“Notwithstanding anything contained in sub-
\nsection (1) to (3), but subject to such conditions
\nand in such circumstances as may be prescribed,
\nthe Assessing Authority of the area may, if a dealer
\nliable to tax under Section 5-B in respect of the
\nworks contract specified in column (2) of the table
\nbelow so elects, accept in lieu of the amount of tax
\npayable by him during the year under this Act, by
\nway of composition an amount at the rates
\nspecified in the corresponding entries in column
\n(3) of the Table on his total turnover relating to
\ntransfer of property in goods (whether as goods or
\nin some other form) involved in the execution of
\nsuch works-contract.”\n<\/p>\n
Again by Act No.5 of 1996 sub-section 6 of  Section 17 was
\namended to read as follows:-\n<\/p>\n
“Notwithstanding anything contained in Section 5-
\nB, but subject to such conditions and in such
\ncircumstances as may be prescribed, the Assessing
\nAuthority of the area may, if a dealer liable to tax
\nunder Section 5-B so elects, accept in lieu of the
\namount of tax payable by him during the year
\nunder this Act, by way of composition an amount
\non the total consideration for the works contracts
\nexecuted by him in that year in the State in respect
\nof works contract specified in column (2) of the
\nSixth Schedule at the rates specified in the
\ncorresponding entries in Column (4) of the said
\nSchedule.”\n<\/p>\n
Sub-section 6 was further amended by Act No.7 of 1997 with
\neffect from April 1,1997.  Clause (i) of sub-section 6 of Section 17 of
\nthe Act as amended reads as follows:-\n<\/p>\n
“(a) for the words and brackets “on his total
\nturnover relating to transfer of property in goods
\n(whether as goods or in some other form) involved
\nin the execution of such works contract”, the
\nwords “on the total consideration received or
\nreceivable by him in respect of such works
\ncontract executed by him in that year in the State”,
\nshall be deemed to have been substituted with
\neffect from the first day of April, 1988:\n<\/p>\n
(b)\t for the words, brackets and figure, “at the
\nrates specified in the corresponding entries in
\ncolumn (4) of the said Schedule,” the words, “at
\nthe rate of four per cent” shall be  substituted.”\n<\/p>\n
The constitutional validity of sub-section 6 of Section 17 of the
\nAct was challenged in several writ petitions filed before the High
\nCourt of Karnataka at Bangalore.  The challenge was on the ground
\nthat in view of Entry 54 of List III of the Seventh Schedule read with
\nsub-clause (b) of Clause (29A) of Article 366 of the Constitution of
\nIndia,\tthe tax under the Act is leviable only on transfer of property in
\ngoods (whether as goods or in some other form). Therefore, even
\nunder a scheme of composition of tax, the tax could not be levied on
\nany goods other than goods in which there was transfer of property in
\nexecution of the works contract.  The State had no legislative
\ncompetence to levy sales tax on the total consideration of the works
\ncontract so as to include items or goods in which there was in fact no
\ntransfer of property.  Reliance was placed on the decisions of this
\nCourt in Builders Association of India & Ors, etc. Vs. Union of
\nIndia & Ors. (1989) 2 SCC 645 and Gannon Dunkerley and Co.
\nVs. State  of Rajasthan (1993)1 SCC 364.  It was submitted that the
\njudgment of this Court in State of Kerala Vs. Builders Association
\nof India (1997) 2 SCC 183 ran counter to the ratio in Builders
\nAssociation of India (supra), a judgment rendered by a Constitution
\nBench of this Court, and therefore the same had no binding effect.  In
\nany event that decision was distinguishable having regard to the facts
\nand circumstances of that case and the provisions contained in the
\nKerala Act.\n<\/p>\n
Secondly, it was contended that in any event sub-section 6 of
\nSection 17, to the extent it had been given retrospective operation by
\nAct 7 of 1997, was unconstitutional as it violated the rights guaranteed
\nto the petitioners under Articles 14, 19 (1)(g)\t and Article 265 of the
\nConstitution of India.\t  The petitioners and others like them, who had
\nopted for the composition scheme, as it stood prior to April 1, 1996,
\ncould not be saddled with additional burden of tax by the amended
\nprovision which was given effect retrospectively from April 1, 1988.
\nIn the facts and circumstances of the case the retrospective operation
\nof the amended provision was arbitrary, violating the right guaranteed
\nto the petitioners under Article 14 of the Constitution of India.\n<\/p>\n
The State of Karnataka on the other hand relied upon the
\ndecision of this Court in the State of Kerala Vs. Builders
\nAssociation of India  (supra) and contended that the question was no
\nlonger res integra and the validity of sub-section 6 of Section 17 as
\namended must be upheld.\t As to the retrospective operation of the
\namended provision, it was submitted that the legislature had
\ncompetence not only to enact a law prospectively, but also
\nretrospectively, subject to its being consistent with the constitutional
\nprovisions.  It was submitted that the rights of the petitioners
\nguaranteed under Article 14 and 19 were not breached at all.  In fact
\nthe legislature always intended to levy tax on total consideration of
\nworks contract so far as assessment under the scheme of composition
\nwas concerned, and for this he relied upon the Budget speech of the
\nFinance Minister wherein a reference was made to the levy at an
\naverage rate of 2% on the total turnover in lieu of all taxes payable
\nunder the Act.\tThe legislative intent was not truly reflected in the
\namendment effected in the Act which gave rise to some controversy
\non the subject.\t To clarify and to give effect to the legislative intent, a
\ncircular was issued by the Commissioner but the same was quashed
\nby the High Court.  In these circumstances the State was left with no
\noption, but to exercise its legislative power to legislate retrospectively
\nwith a view to remove the lacuna in the existing provision.\n<\/p>\n
A batch of writ petitions, including the writ petition preferred
\nby the appellant in Civil Appeal No.902 of 1999,  was disposed of by
\na common judgment of a learned Judge of the High Court holding that
\nthe decision of this Court in State of Kerala Vs. Builders
\nAssociation of India (supra) squarely answered the challenge and the
\nquestion was no longer res integra.  The challenge to the constitutional
\nvalidity of sub-section 6 of Section 17 was accordingly repelled.\n<\/p>\n
So far as the validity of Act No.7 of 1997 is concerned, the
\nlearned Judge upheld its validity holding that the legislature was
\ncompetent to enact the law with retrospective effect. The High Court
\nhowever noticed the stand of  the State in its statement of objections
\nfiled in reply to the writ petition in which it was submitted that with a
\nview to avoid hardship that may be caused by the retrospective
\noperation of the amended provision, the Court in the interest of justice
\nmay direct that the works contractors may opt, if so advised, for
\nregular assessment under Section 5B of the Act, even if they had
\nearlier opted for assessment under the composition scheme.   The
\nlearned Judge therefore, while dismissing the writ petitions, having
\nregard to the stand of the State of Karnataka, reserved liberty to the
\npetitioners to opt for regular assessment under Section 5B of the Act
\nnotwithstanding the fact that they had opted for composition under
\nSection 17 (6) of the Act. For this purpose petitioners were required to
\nmake an application to the concerned assessing authority and the
\nassessing authorities were directed to proceed to assess the petitioners
\nand all others who were not before the court, under Section 5B of the
\nAct, if they so opted.\n<\/p>\n
Appeals preferred before a  Division Bench of the High Court
\nwere also dismissed,  since the Division Bench of the High Court
\nfound itself in complete agreement with the learned Judge and was
\nalso of the view that the judgment of this Court in the State of
\nKerala\tVs. Builders Association of India (supra) fully covers the
\ncase.  The judgment of the Division Bench is impugned before us by
\nspecial leave in Civil Appeal No. 902 of 1999.\tIn the remaining
\nappeals the High Court followed its aforesaid judgment, and
\ndismissed the writ petitions.\n<\/p>\n
 Mr. Raju Ramachandaran, Senior Advocate appearing on
\nbehalf of some of the appellants placed before us the judgment of this
\nCourt in State of Kerala Vs. Builders Association of India (1997) 2
\nSCC 183. We have carefully read the aforesaid judgment. Fairly Mr.
\nRaju Ramachandaran submitted that he was unable to point out any
\ndistinction between the provisions of the Kerala Act and the
\nKarnataka Act which may have a bearing on the question of
\ninterpretation.\t We have also considered the matter and we are also of
\nthe view that so far as the scheme of composition of tax is concerned,
\nthe relevant provisions of both the Acts even if not identical, are
\nvastly similar.\t On the question of the constitutional validity of sub-
\nsection 6 of Section 17 the same argument was advanced before this
\nCourt in the State of Kerala Vs. Builders Association of India (supra).
\nIn that case, the High Court had declared as unconstitutional sub-
\nsections (7) and       (7A) of Section 7    upholding the  contention that
\nthey sought to levy tax at the rate of 2 % on the whole amount of the
\ncontract, or at a particular rate applied to the entire value of contract,
\nand not merely upon the value of the goods transferred in the course
\nof execution of the works contract as contemplated  under sub-clause\n<\/p>\n
(b)  of\t clause (29-A) of Article 366.\t The court noticed that the goods
\nwhich were transferred in the course of execution of works contract
\nmay be “declared goods”, liable to be taxed under the Central Sales
\nTax Act, 1956.\tThe goods so transferred may also be taxable under
\ndifferent Schedules to the Kerala Act which prescribe different rates.
\nIn such a situation levy of tax on entire value of the contract meant
\nlevy of tax contrary to the provisions of the Central Sales Tax Act and
\nthe Kerala General Sales Tax Act.  It also meant including the non-
\ntaxable components of works contract e.g. labour and services etc.
\nFor all these reasons, the High Court held that the said sub-sections
\nwere clearly beyond the legislative competence of the State
\nLegislature.  This court repelled the submission urged before it in the
\nfollowing words:-\n<\/p>\n
“The first feature to be noticed is that the alternate
\nmethod of taxation provided by sub-section (7) or
\n(7-A) of Section 7 is optional.\t The sub-sections
\nexpressly provide that the method of taxation
\nprovided thereunder is applicable only to a
\ncontractor who elects to be governed by the said
\nalternate method of taxation.  There is no
\ncompulsion upon any contractor to opt for the
\nmethod of taxation provided by sub-section (7) or
\nsub-section (7-A).  It is wholly within the choice
\nand pleasure of the contractor.\t If he thinks it is
\nbeneficial for him to so opt, he will opt; otherwise,
\nhe will be governed by the normal method of
\ntaxation provided by Section 5(1) (iv).\t Sub-
\nsection (8) provides that the option to come under
\nsub-section (7) or (7-A) has to be exercised by the
\ncontractor “either by an express provision in the
\nagreement for the contract or by an application to
\nthe assessing authority to permit him to pay the tax
\nin accordance with any of the said sub-sections”.
\nIn these circumstances, it is evident that a
\ncontractor who had not opted to this alternate
\nmethod of taxation cannot complain against the
\nsaid sub-sections, for he is in no way affected by
\nthem.  Nor can the contractor who has opted to the
\nsaid alternate method of taxation, complain.
\nHaving voluntarily, and with the full knowledge of
\nthe features of the alternate method of taxation,
\nopted to be governed by it, a contractor cannot be
\nheard to question the validity of the relevant sub-
\nsections or the rules.\tSub-sections (8), (11) and
\n(12) of Section 7 are incidental and ancillary to
\nsub-sections (7) and (7-A) and cannot equally be
\nfaulted.  Secondly, it is true that the goods
\ntransferred in the course of execution of the works
\ncontract may be chargeable at different rates under
\ndifferent Schedules appended to the Kerala Act; it
\nmay also be that some of them may be “declared
\ngoods’, the levy of tax upon which is subject to
\ncertain restrictions specified in Sections 14 and 15
\nof the Central Sales Tax Act; it may also be that
\nsale of some of the goods may also be subject to
\nCentral sales tax.  It must yet be remembered that
\nthe method of taxation introduced by sub-sections
\n(7) and (7-A) is in the nature of composition of tax
\npayable under Section 5 (1) (iv).  The impugned
\nsub-sections have evolved a convenient, hassle-
\nfree and simple method of assessment just as the
\nsystem of levy of entertainment tax on the gross
\ncollection capacity of the cinema theatres.  By
\nopting to this alternate method, the contractor
\nsaves himself the botheration of book-keeping,
\nassessment, appeals and all that it means.  It is not
\nnecessary to enquire and determine the extent or
\nvalue of goods which have been transferred in the
\ncourse of execution of a works contract, the rate
\napplicable to them and so on.  For example, under
\nsub-section (7), the contractor pays two per cent of
\nthe total value of the contract by way of tax and he
\nis done with all the above-mentioned botheration.
\nThe rate of two per cent prescribed by sub-section
\n(7) is far lower than the rates in Schedules 1,2 and
\n5 referred to in Section 5(1)(iv)(a).  In short, sub-
\nsections (7) and (7-A) evolve a rough and ready
\nmethod of assessment of tax and leave it to the
\ncontractor either to opt for it or be governed by the
\nnormal method.\tIt is only an alternative method of
\nascertaining the tax payable, which may be availed
\nof by a contractor if he thinks it advantageous to
\nhim.  It must be remembered that the analogous
\nsystem of alternate method of taxation evolved by
\ncertain State Legislatures in the matter of levy of
\nentertainment tax has been upheld by this Court in
\nVenkateshwara Theatre V. State of A.P.\tThe rough
\nand ready method evolved by the impugned sub-
\nsections for ascertaining the tax payable under
\nSection 5(1) (iv) of the Act cannot be said to be
\nbeyond the legislative competence of the State or
\nviolative of clause (29-A) of Article 366 either.
\nThe Constitution does not preclude the legislature
\nfrom evolving such alternate, simplified and
\nhassle-free method of assessment of tax payable,
\nmaking it optional for the assessee.  The object of
\nsub-sections (7) and (7-A) is the same as that of
\nSection 5(1)(iv); it is only that they follow a
\ndifferent route to arrive at the same destination.”\n<\/p>\n
We are of the considered view that principles laid down by this
\nCourt in the aforesaid decision squarely apply to the facts of this case
\nhaving regard to the similarity of the provisions in the two Acts.  We
\ntherefore find ourselves in complete agreement with the High Court
\nand hold that sub-section 6 of Section 17 of the Karnataka Sales Tax
\nAct is constitutionally valid and the challenge on the ground of lack of
\nlegislative competence of the State Legislature must be repelled.
\nLearned Counsel then submitted that even while evolving a
\nsimplified method for assessment of tax, such as the scheme of
\ncomposition in the instant case, the law cannot give an option to the
\nassessees which is in the teeth of constitutional provisions.  This
\nargument does not survive in view of the principles laid down by the
\nSupreme Court in State of Kerala Vs. Builders Association of India
\n(supra).  He made a faint attempt to draw a distinction between the
\nKerala Act and the Karnataka Act by reference to the background in
\nwhich the provisions were enacted.  He submitted that under the
\nKerala Act the composition scheme was introduced by the
\namendments in the years 1991 and 1992. So far as State of Karnataka
\nis concerned sub-section 6 of Section 17 which gave option to the
\nassessees to pay tax at a fix rate on the value of the goods, the
\nproperty in which was transferred in the course of execution of works
\ncontract came into effect in the year 1988 and continued till the year
\n1996.  The appellants had taken benefit of the said scheme of
\ncomposition by exercising their option for assessment under the
\ncomposition scheme.  They had therefore opted for something
\ndifferent from what is sought to be given to them under the amended
\nprovision which levies tax not merely on the value of goods
\ntransferred, but on the whole amount of the contract.  He, therefore,
\nsubmitted that having regard to the legislative background,
\namendment of sub-section 6 of Section 17 with retrospective effect by
\nAct 7 of 1997 is clearly unconstitutional.  The submission has no
\nforce.\tIf the Legislature has legislative  competence to enact a statute
\nand the statute so enacted does not breach any constitutional
\nprovision, the same cannot be said to be unconstitutional merely
\nbecause it is retrospective in operation.  Moreover, in the instant case
\nas explained in State of Kerala Vs. Builders Association of India
\n(supra) the appellants had opted for assessment under the composition
\nscheme.\t They were not compelled to exercise their option and
\notherwise they would have been assessed in accordance with the
\nprovisions of the Act particularly Section 5-B thereof.\t To remove any
\nhardship to the assessees by retrospective operation of the amended
\nscheme of composition, the State Government itself submitted that the
\nappellants and others like them may be given option to opt for
\nassessment under Section 5-B of the Act even if they had earlier opted
\nfor assessment under sub-section 6 of Section 17.  The High Court has
\nin fact made such a direction.\tThe appellants are therefore not
\nprejudiced in any manner whatsoever.\n<\/p>\n
Lastly, counsel submitted that while considering the question of
\nretrospectivity, the High Court has passed its judgment on an
\nerroneous assumption of facts, namely that the assessments so far
\nmade were on the basis of total consideration.\tThe learned counsel
\nsubmitted that this was not factually correct.\tWe have perused the
\njudgment and we find that though the submission of the counsel for
\nthe State to this effect was noticed, the judgment of the High Court is
\nnot based on this assumption. The judgment of the High Court would
\nnot have been different even if the fact was otherwise.\n<\/p>\n
Mr. S.S. Javali, learned Senior Advocate, appearing for the
\nappellants in Civil Appeals Nos.7575-77 of 1999 submitted that the
\nappellants had opted under the composite scheme and enjoyed the
\nbenefit for almost 9 years. It would be unreasonable to relegate them
\nto the same position that they occupied before they exercised the
\noption for assessment under the composition scheme.  He submits that
\nconsiderations of equity must persuade this court to pass an
\nappropriate direction so that the assessments made on the basis of the
\noptions already given are not affected in any manner.  Having held
\nthat the retrospective operation of the amended provision is
\nconstitutional, and having noticed that the assessees are at liberty to
\nopt for regular assessment under Section 5-B of the Karnataka Sales
\nTax Act, it would not be appropriate to make such a direction on
\nconsiderations of equity particularly while dealing with a taxing
\nstatute.\n<\/p>\n
Learned counsel relied upon some observations made in
\nTexmaco Ltd. & Anr. Vs. State of A.P. & Anr. (2000) 1 SCC 763.
\nHe also relied upon the judgment of this court in D. Cawasji & Co.
\nMysore Vs. State of Mysore and Anr. 1984 (supp) SCC 490.  We
\nhave carefully perused the aforesaid judgments of this Court but we
\nfind nothing in\t the two judgments to support the case of the
\nappellants. Those cases proceeded on altogether different
\nconsiderations, which do not arise in the appeals before us.  The
\nprinciples laid down therein are of no assistance to the appellants.
\nHaving considered all aspects of the matter we find that there is no
\nmerit in these appeals.\n<\/p>\n
We accordingly dismiss the appeals, but without\t any order as
\nto   costs.\n<\/p>\n
….J
\n(SHIVARAJ V. PATIL)<\/p>\n
….J
\n(BISHESHWAR PRASAD SINGH)<\/p>\n
May 7, 2002.<\/p>\n","protected":false},"excerpt":{"rendered":"
Supreme Court of India M\/S. Mycon Construction Limited vs State Of Karnataka & Anr on 7 May, 2002 Author: B P Singh Bench: Shivaraj V. Patil, Bisheshwar Prasad Singh CASE NO.: Appeal (civil) 902 of 1999 PETITIONER: M\/S. MYCON CONSTRUCTION LIMITED Vs. RESPONDENT: STATE OF KARNATAKA & ANR. DATE OF JUDGMENT: 07\/05\/2002 BENCH: Shivaraj V. […]<\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_lmt_disableupdate":"","_lmt_disable":"","_jetpack_memberships_contains_paid_content":false,"footnotes":""},"categories":[30],"tags":[],"class_list":["post-222191","post","type-post","status-publish","format-standard","hentry","category-supreme-court-of-india"],"yoast_head":"\nM\/S. 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