T. Vaiphei, J.
1. The legislative competence of the State of Meghalaya to enact Section 106 of the Meghalaya Value Added Tax Act, 2003 ('the Act', for short) is called into question by thirteen petitioners in this bunch of writ petitions. As they involve identical questions of law and facts, they were heard together, and are now being disposed of by this common judgment.
2. To comprehend and decide the controversy in these writ petitions, we will first refer to the facts in W.P. (C) No. 48(SH) of 2007 and then apply our decision to the remaining cases. The petitioner is a society under the name and style of 'MES Builders' Association' registered under the Societies Registration Act, 1860 with one of its branches located at Shillong, and has a membership of 40 builders/contractors. The members of this society are undertaking construction works on behalf of Garrison Engineer under the Ministry of Defence, Government of India, and are registered dealers with the sales tax authority of the State of Meghalaya. In the year 2003, the State of Meghalaya had enacted the Meghalaya Value Added Tax Act, 2003 ('the Act', for short) for levying of value added tax on sales and purchases of goods in the State, which came into force with effect from March 4, 2005, when it was published in the Gazette Extraordinary No. 25 of the Government of Meghalaya. This Act was subsequently amended by the Meghalaya Value Added Tax (Amendment) Act, 2005. On the coming into force of this Act, the Garrison Engineer (I)(AF), Shillong (respondent No. 2) by his communication dated May 27, 2006 informed one of the members of the petitioner-society that henceforth sales tax at the rate of four per cent would be deducted against a running contract on submission of VAT registration while in other cases, the same would be deducted at the rate of 12.5 per cent from the running bill. Since then, VAT was deducted at four per cent from the bill/cash memos of the members of the petitioner-association. After sometime, the State-respondents informed respondent No. 3 through letter dated February 20, 2007 that as per the provision of Section 106 of the Act, the rate of tax on works contract is 12.5 per cent after allowing the percentage of deduction as prescribed under Schedule IV-A appended to the Act and the manner of deduction should be as prescribed in rule 39 of the Meghalaya Value Added Tax Rules, 2005 ('the Rules', for short).
3. The case of the petitioner is that the nature of works entrusted upon members of their society for execution mostly involves labour components and the materials purchased by them, which are used for construction of the various works, for which value added tax under the Act was already paid for by them. For instance, the standardized tender form in the contract agreement dated October 31, 2005 would reveal that the nature of work entrusted to them therein mostly involves labour components and the materials purchased by them. The contract agreements are single and indivisible in nature and the value of the works contract includes the cost of material, labour charges and other charges, which also includes the profit earned by the contractors. As per the terms and conditions of the contract agreement, the quoted rates shall be deemed to include all taxes leviable by Central and State Governments at the prevailing rates such as sales tax, VAT, etc. Taxes which have to be deducted at source are required to be recovered by the Garrison Engineer at applicable rate. The petitioner contends that Sub-section (1) of Section 5 of the Act provides that a tax is to be charged on the 'turnover of sale of goods' at the rate or rates specified in Schedules II, III and IV to the Act at every point of sale of such goods within the State of Meghalaya. Sub-section (2) of Section 5 provides a mechanism for determining the gross turnover of sale during any period which is taxable. According to the petitioner, on a plain reading of Sub-section (1) and Sub-section (2) of Section 5 together, it is clear that a tax is to be levied on taxable turnover and that the term 'taxable turnover' means gross turnover during the year as reduced by the turnover relating to exempted goods and sale of goods which takes place in the course of inter-State trade and commerce or outside the State or in the course of import of goods into and export of goods out of the territory of India and so much of the labour and other charges in the execution of the works contracts. It is also further clear from the proviso to clause (c) of Sub-section (2) of Section 5 that the charges towards labour, services and other like charges are to be ascertained from the terms and conditions of the contract and in case the same cannot be ascertained, the amount of such charges is required to be calculated on the basis of such percentage of the value of works contract as specified in Schedule IV-A to the Act. Thus, so submits the petitioner, a conjoint reading of Sub-section (1) and Sub-section (2) of Section 5 amply makes it clear that in the case of works contract also, a tax is to be charged on the 'taxable turnover' after making the permissible deduction and not on gross turnover of the contractor after taking the deduction at the prescribed rate specified in Schedule IVA towards labour charges alone.
4. The petitioner further submits that the taxing power of the State can be exercised only within the parameters of entry 54, List II of the Seventh Schedule to the Constitution subject to the restrictions and provisions contained in Article 286 of the Constitution. Though the extended definition of the term 'sale' in Article 366(29A)(b) of the Constitution takes within its sweep the supply of goods or transfer of property in goods involved in the execution of a works contract, it does not confer any power on the State to levy tax outside the State. If in the process of executing a works contract, a transfer of property in goods takes place outside the State of Meghalaya, in the course of inter-State commerce and trade or in the course of import into or export outside the Territory of India, the State would have no power to levy tax on such transfers. Furthermore, the price of goods supplied by a person who has assigned the contract for the purpose of executing a works contract cannot be treated as a part of the taxable turnover. That apart, the restrictions and conditions contained in Section 15 of the Central Sales Tax Act, 1956, on the power of the States to levy tax on the sale of declared goods apply equally and fully to transfer of property in goods under the works contract even as they apply to ordinary sales. It is thus contended that the entire works contract cannot be deemed to be a sale. It is further contended by the petitioner that Section 106 of the Act read with rule 39 of the Rules makes a provision for deduction of tax in respect of works contract at 12.5 per cent from the total value of the work after allowing percentage of deduction as prescribed in Schedule IV-A to the Act, which, however, includes certain items only while leaving out a number of items, both materials and labour charges, which are nevertheless involved in the works contract. In other words, according to the petitioner, Section 106 has not taken into consideration the deductions which are required to be made from the total value of the work for determining the taxable turnover as provided under Section 5(2). Since the charging section, namely, Section 5 provides for levy of tax on the taxable turnover in respect of sale of goods, Section 106, which is an incidental and ancillary power to the main section, must also be within the legislative competence of the State inasmuch as the ancillary power can be provided or/and exercised only in aid of the main topic of legislation and not in derogation thereof. In other words, contends the petitioner, the provisions of Section 106 cannot go beyond the legislative power of the State, and has to confine itself to the powers conferred on the State within the entry in one or the other of the Lists enumerated in the Seventh Schedule to the Constitution. It is, therefore, submitted that Section 106 of the Act is violative of articles 14, 19(1)(g), 265, 286 and 300-A of the Constitution as the same is confiscatory and does not provide for any machinery to determine even approximately the taxable turnover by a dealer for the purpose of collection of advance tax similar to what has been provided for in Section 194(C)(4) of the Income-tax Act, 1961. It is further submitted that the letter dated May 27, 2006 issued by respondent No. 2 and the letter dated February 20, 2007, issued by respondent No. 6 in accordance with the impugned Section 106 of the Act are equally liable to be quashed.
5. The writ petition is contested by the State-respondents by filing their affidavit-in-opposition. The stands taken by the State-respondents in their affidavit-in-opposition are that this Court in Allied Traders v. State of Meghalaya [2002] 1 GLT 482 has upheld the constitutional validity of Section 27 of the Assam General Sales Tax Act, 1993 and rule 8(3)(iv) of the Assam General Sales Tax Rules, 1993, which are in pari materia with the impugned Section 106 herein, and, as such, the impugned provision cannot be confiscatory in nature by reading it down to make it consistent with the provisions of the Constitution of India and further held that 'deduction of tax at source under Section 27 of the Act is not an end of the matter and the dealers/assessees are at liberty to claim all permissible deduction, if any, available to them while final assessments are being made'. Referring to Section 15(a) of the Central Sales Tax Act, 1956 as amended in 2002, it is contended that the omission therein of the words 'and such tax shall not be levied at more than one stage' has removed the embargo placed on the legislative power of the State to enact the impugned provision. In connection with the exemption of taxes on labour and exempted goods, the Govern-ment of Meghalaya, in order to safeguard the leakage of revenue, has inserted Schedule IV-A to the Act with an intention to enable the buying Departments or the officers of the State or Central Government or public undertakings or other authorities to deduct the taxes at source at lump sum rates after allowing some percentage of deduction from the bills of the contractors as labour charges. This has been done with a view to facilitate the work of the contractors who could not bifurcate their bills to show taxable goods supplied while executing works contracts as distinct and different from non-taxable goods. For example, if the total bill submitted by the contractor for the works of fabrication and installation of plants and machinery under serial No. 1 of Schedule IV-A is Rs. 1,00,000, then the percentage of deduction allowed for labour charges is 15 per cent. Therefore, the lumpsum tax to be deducted at source by the buying Department is worked out as follows:
Gross amount of the bills ... Rs. 1,00,000
Less 15 per cent deduction allowed for labour charges, etc. ... Rs. 15,000
Net taxable amount ... Rs. 85,000
Therefore, the lumpsum VAT to be deducted at 12.5 ... Rs. 10,625
6. It is the further case of the State-respondents that if the contractors maintain proper accounts and submit their returns to the Superintendent of Taxes as provided under Section 36 of the Act, the contractor/assessee can claim refund as provided under Section 49 of the Act, and the assessing officer is bound to grant refunds if it is found eligible upon scrutiny of return and assessment. This is a mechanism to enable the dealer to claim refund of the tax deducted at source in respect of non-taxable/exempted goods, the excess amount of taxes deducted from declared goods, i.e., more than four per cent and the labour components, if such a situation arises. It is pointed out that the concept of value added tax is to levy taxes at different stages of sales, i.e., at the stage of the producer, at the stage of the wholesaler, at the stage of retailer and at the stage of sub-retailer; that Section 11 of the Act allows a set-off against the tax already suffered at the previous point of sale in the form of input-tax credit and this facility is available to all dealers registered under VAT at the time of submission of return/assessment, and the petitioner could have very well taken recourse to the provision under Section 11 of the Act irrespective of the contract agreement that could have been entered upon between the contractor and the authority who allotted the contract, and make a claim for refund/ adjustment before the assessing authority at the time of VAT assessment, and taxes which might have been wrongly deducted by the respondents at source could have been refunded/adjusted. The answering respondents deny that Section 106 in any manner violates Article 286 of the Constitution or entry 54 of List II or entry 92A of List I of the Seventh Schedule to the Constitution. It is asserted that the question of deduction of local taxes at source on the goods sold outside the State in the course of inter-State trade or commerce and in the course of import into or export out of the Territory of India does not arise. It is contended that the provisions of Section 5 and Section 106 of the Act and rule 39 of the Rules cannot be read in isolation and that Rule 12 also lays down the procedure for determining the taxable turnover in respect of a works contract inasmuch as Section 5 of the Act provides the legal framework covering deduction of taxes at source. However, the facility for such determination will be available only at the stage when deduction of tax at source is made by the buying Department or the contractor. The petitioner has not exhausted all the avenues and procedures legally available to it under the proviso to Section 106(2) and other provisions prescribed under the Act or, at any rate, in accordance with the observation of this Court in Allied Traders [2002] 1 GLT 482. According to the answering respondents, the Act has constituted a proper mechanism for implementation of the Act which, inter alia, includes the method for:
1. Determination of the taxable turnover as provided under Section 5,
2. Submission of return as provided under Section 35,
3. Completion of self-assessment as provided under Section 53,
4. Assessment by the tax authority as provided under Section 45,
5. Claiming of input-tax credit as provided under Section 11, and
6. Refund as provided under Section 49.
7. The answering respondents thus submit that there is no constitutional infirmity in the impugned Section 106 or the Rules made thereunder. The writ petition is premature inasmuch as the internal mechanism provided for in the Act has not been exhausted by it, and the same is, therefore, liable to be dismissed.
8. Before proceeding further, it may be apposite to refer to the provisions of Section 106 of the Act, which are reproduced hereinbelow:
106. Special provisions relating to deduction of tax at source.-
Notwithstanding anything contained in other provisions of this Act-
(1) Every person (excluding an individual, Hindu undivided family, a firm or a company not under the control of the Government) responsible for making any payment or discharging any liability on account of any amount payable for the transfer of property in goods (whether as goods or some other form) involved in a works contract for the transfer of the right to use any goods for any purpose; or
(2) Every person responsible for paying sale price or consideration in respect of any sale or supply of goods liable to tax under this Act to the Government or to a company, corporation, Board or authority, undertaking or any other body by whatever name called, owned, financed or controlled wholly or substantially by the Government shall at the time of credit to the account of or payment to the payee of such amount in cash, by cheque, by adjustment or in any other manner whatsoever, deduct tax therefrom in the prescribed manner at the rate specified in the Schedule to the Act in respect of sale or supply of goods or transfer of the right to use any goods and in respect of works contract at the rate of 12.5 per cent after allowing percentage of deduction from the work value as prescribed in Schedule IVA appended to the Act:
Provided that no deduction shall be made under this sub-section where the amount paid or credited by such person in any financial year does not exceed the prescribed amount or where the dealer produces a certificate as prescribed from the Commissioner that he has no liability to pay tax or that he has paid tax payable by or due from him.
(3) Any tax deducted under Sub-section (2) shall be paid to the account of the State Government in such manner and within such time as may be prescribed.
(4) The person making deduction of tax under Sub-section (2) and paying it to the account of the State Government shall issue a certificate of tax deduction to the payee in such manner and in such form and within such time as may be prescribed.
(5) Any tax deducted under Sub-section (2) and paid to the account of the State Government shall, on production of the certificate of tax deduction under Sub-section (4) by the payee be deemed to be tax paid by the payee for the relevant period and shall be given credit in his assessment accordingly.
(6) No interest or penalty shall be imposed or no recovery proceedings against the dealer/payee shall be initiated in respect of tax deducted under Sub-section (2).
9. We may also reproduce other relevant provisions of the Act, namely, Section 3 and Section 5 of the Act, which are as follows:
3. Incidence of tax.--(1) Liability--Subject to other provisions of this Act, every dealer-
(a) whose turnover during the year immediately preceding the commencement of this Act-
(i) exceeded the taxable quantum; or
(ii) liable to pay tax under any of the laws repealed by this Act or the Central Sales Tax Act, 1956.
(b) to whom clause (a) does not apply and-
(i) whose turnover calculated from the commencement of any year first exceeds within such year the taxable quantum; or
(ii) who has become liable to pay tax under the Central Sales Tax Act, 1956; or
(iii) who is registered as a dealer under the Central Sales Tax Act, 1956 or under this Act at any time after the commencement of this Act; shall be liable to pay tax in accordance with the provisions of this Act.
(2) Date of liability.--The dealer shall be liable to pay tax on all sales effected by him and-
(a) in case of clause (a) of Sub-section (1) with effect from commencement of this Act;
(b) in case of sub-clause (i) of clause (b) of Sub-section (1) with effect from the date immediately following the day on which his turnover calculated from the commencement of the year first exceed the taxable income;
(c) in case of sub-clause (ii) or (iii) of clause (b) of Sub-section (1) with effect from the date on which he becomes so liable or date of registration under this Act, whichever is earlier.
(3) Continuation of liability.--Every dealer who has become liable to pay tax under this Act, shall continue to be so liable until the expiry of three consecutive years during which his turnover has remained below the taxable quantum and on the expiry of such period his liability to pay tax shall cease:
Provided that any dealer whose liability to pay tax under this Act, ceases, may apply for the cancellation of his certificate of registration, and on such cancellation, his liability shall cease.
(4) Re-commencement of liability.--Every dealer whose liability to pay tax under this Act, has ceased under Sub-section (3) or whose certificate of registration has been cancelled, shall, if his turnover calculated from the commencement of any year, including the year in which the registration has been cancelled, again exceeds the taxable quantum on any day within such year, be liable to pay such tax with effect from the date immediately following the day on which his turnover again exceeds the taxable quantum, on all sales effected by him after that day.
(5) Taxable quantum.-- For the purpose of this Act, 'taxable quantum' means in relation to any dealer who-
(a) manufactures or imports for sale any goods into Meghalaya on his own behalf or on behalf of his principal ... Nil
(b) is engaged in any other business other than clause (a) above... Rs. 1 (one) lakh.
Explanation.--For the purpose of computation of tax quantum, the turnover of sales effected by a sale dealer shall be taken into account irrespective of whether such sales are taxable under this Act or not.
(6) A dealer who deals exclusively in one or more classes of goods specified in the Schedule to be notified under this Act shall not be liable to pay any tax under this Act for the purpose of calculating the gross turnover to determine the liability to pay tax under the Act-
(a) except as otherwise expressly provided, the turnover of all sales or as the case may be, the turnover of all purchases shall be taken, whether such sales or purchases are taxable or not; and
(b) the turnover shall include all sales and purchases made by a dealer on his own account and also on behalf of principals whether disclosed or not.
5. Levy of value added tax on goods specified in the Schedules appended to this Act.--(1) Subject to the provisions of this Act, and Rules, there shall be levied a tax on the turnover of sales of goods specified in Schedules II, III and IV appended to this Act at every point of sale of such goods within the State at the rate specified therein.
(2) Taxable turnover of sales in relation to a dealer liable to pay tax on sale of goods under Sub-section (1) of Section 3 shall be part of the gross turnover of sales during any period which remains after deducting therefrom;
(a) sales of goods declared as exempted under Section 8(1)(a);
(b) sales of goods which are shown to the satisfaction of the Commissioner to have taken place-
(i) in the course of inter-State trade or commerce; or
(ii) outside Meghalaya; or
(iii) in the course of the import of the goods into or export of the goods out of the Territory of India;
Explanation.--Sections 3, 4 and 5 of the Central Sales Tax Act, 1956 shall apply for determining whether or not a particular sale or purchase has taken place in the manner indicated in sub-Clause (i), sub-Clause (ii) or sub-Clause (iii);
(c) in case of turnover of sales in relation to works contract, the charges towards labour, services and other like charges and subject to such conditions as may be prescribed:
Provided that in the cases where the amount of charges towards labour, services and other like charges in such contract are not ascertainable from the terms and conditions of the contract, the amount of such charges shall be calculated on the basis of such percentages of the value of works contract as specified in Schedule IVA appended to this Act;
(d) such other sales on such conditions and restrictions as may be prescribed.
10. We may also reproduce hereinbelow the provisions of Articles 286, 366(29A) of the Constitution and entry 92A of List I and entry 54 of List II of the Seventh Schedule to the Constitution:
286. Restrictions as to imposition of tax on the sale or purchase of goods.--(1) No law of a State shall impose, or authorize the imposition of, a tax on the sale or purchase of goods where such sale or purchase takes place-
(a) outside the State; or
(b) in the course of the import of the goods into, or export of the goods out of, the territory of India.
(2) Parliament may by law formulate principles for determining when a sale or purchase of goods takes place in any of the ways mentioned in Clause (1).
(3) Any law of a State shall, in so far as it imposes, or authorizes the imposition of,-
(a) a tax on the sale or purchase of goods declared by Parliament by law to be of special importance in inter-State trade or commerce; or
(b) a tax on the sale or purchase of goods, being a tax of the nature referred to in sub-Clause (b), or sub-Clause (c), or sub-Clause (d) of Clause (29A) of Article 366,
be subject to such restrictions and conditions in regard to the system of levy, rates and other incidents of the tax as Parliament may by law specify.
Then, Clause (29A) of Article 366 is in the following terms:
(29A) 'tax on the sale or purchase of goods' includes-
(a) a tax on the transfer, otherwise than in pursuance of a contract, of property in any goods for cash, deferred payment or other valuable considerations;
(b) a tax on the transfer of property in goods (whether as goods or in some other form) involved in the execution of a works contract;
(c) a tax on the delivery of goods on hire-purchase or any system of payment by instalments;
(d) a tax on the transfer of the right to use any goods for any purpose (whether or not for a specified period) for cash, deferred payment or other valuable consideration;
(e) a tax on the supply of goods by any unincorporated association or body of persons to a member thereof for cash, deferred payment or other valuable consideration;
(f) a tax on the supply, by way of or as part of any service or in any other manner whatsoever, of goods, being food or any other article for human consumption or any drink (whether or not intoxicating), where such supply or service, is for cash, deferred payment or other valuable consideration,
and such transfer, delivery or supply of any goods shall be deemed to be a sale of those goods by the person making the transfer, delivery or supply and a purchase of those goods by the person to whom such transfer, delivery or supply is made ;'
Entry 92A of the Union List reads thus:
92A. Taxes on the sale or purchase of goods other than newspapers, where such sale or purchase takes place in the course of inter-State trade or commerce.Entry 54 of the State List is in the following terms:54. Taxes on sale or purchase of goods other than newspapers, subject to the provisions of entry 92A of List I.
11. By the Forty-sixth Amendment of the Constitution of India, Clause (29A) was inserted in Article 366 and Clause (3) of Article 286 was substituted. The validity of this provision was called into question before the apex court in Builders Association of India v. Union of India : [1989] 73 STC 370 : [1989] 2 SCC 645. While upholding the constitutional validity of this provision, the apex court, inter alia, held at para 32 thus:.The object of the new definition introduced in Clause (29A) of Article 366 of the Constitution is, therefore, to enlarge the scope of 'tax on sale or purchase of goods' wherever it occurs in the Constitution so that it may include within its scope the transfer, delivery or supply of goods that may take place under any of the transactions referred to in sub-clauses (a) to (f) thereof wherever such transfer, delivery or supply becomes subject to levy of sales tax. So construed the expression 'tax on the sale or purchase of goods' in entry 54 of the State List, therefore, includes a tax on the transfer of property in goods (whether as goods or in some other form) involved in the execution of a works contract also. The tax leviable by virtue of subClause (b) of Clause (29A) of Article 366 of the Constitution thus becomes subject to the same discipline to which any levy under entry 54 of the State List is made subject to under the Constitution...
12. In Gannon Dunkerley & Co. v. State of Rajasthan : [1993] 88 STC 204 : [1993] 1 SCC 364, the apex court, after discussing the scope and ambit of the legislative power of the State under entry 54 of the State List, the definition of 'sale' in the context of transfer of property in goods involved in the execution of works contract, the permissible measure of tax and the rate of levy, laid down at paragraph 51 the following principles:
51. The aforesaid discussion leads to the following conclusions:
(1) In exercise of its legislative power to impose tax on sale or purchase of goods under entry 54 of the State List read with Article 366(29A)(b), the State Legislature, while imposing a tax on the transfer of property in goods (whether as goods or in some other form) involved in the execution of a works contract is not competent to impose a tax on such transfer (deemed sale) which constitutes a sale in the course of inter-State trade or commerce or a sale outside the State or a sale in the course of import or export.
(2) The provisions of Sections 3, 4 and 5 and Sections 14 and 15 of the Central Sales Tax Act, 1956 are applicable to a transfer of property in goods involved in the execution of a works contract covered by Article 366(29A)(b).
(3) While defining the expression 'sale' in the sales tax legislation it is open to the State Legislature to fix the situs of a deemed sale resulting from a transfer falling within the ambit of Article 366(29A)(b) but it is not permissible for the State Legislature to define the, expression 'sale' in a way as to bring within the ambit of the taxing power a sale in the course of inter-State trade or commerce, or a sale outside the State or a sale in the course of import and export.
(4) The tax on transfer of property in goods (whether as goods or in some other form) involved in the execution of a works contract falling within the ambit of Article 366(29A)(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.
(5) In order to determine the value of the goods which are involved in the execution of a works contract for the purpose of levying the tax referred to in Article 366(29A)(b), it is permissible to take the value of the works contract as the basis and the value of the goods involved in the execution of the works contract can be arrived at by deducting expenses incurred by the contractor for providing labour and other services from the value of the works contract.
(6) The charges for labour and services which are required to be deducted from the value of the works contract would cover (i) labour charges for execution of the works, (ii) amount paid to a subcontractor for labour and services, (iii) charges for obtaining on hire or otherwise machinery and tools used for execution of the works contract, (iv) charges for planning, designing and architect's fees, (v) cost of consumables used in the execution of the works contract, (vi) cost of the establishment of the contractor to the extent it is relatable to supply of labour and services, (vii) other similar expenses relatable to supply of labour and services, and (viii) profit earned by the contractor to the extent it is relatable to supply of labour and services.
(7) To deal with cases where the contractor does not maintain proper accounts or the account books produced by him are not found worthy of credence by the assessing authority the Legislature may prescribe a formula for deduction of cost of labour and services on the basis of a percentage of the value of the works contract but while doing so it has to be ensured that the amount deductible under such formula 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. It would be permissible for the Legislature to prescribe varying scale for deduction on account of cost of labour and services for various types of works contract.
(8) While fixing the rate of tax it is permissible to fix a uniform -rate of tax for the various goods involved in the execution of a works contract which rate may be different from the rates of tax fixed in respect of sales or purchase of goods as a separate article.
13. It is against the backdrop of the aforesaid propositions of law laid down by the apex court that we propose to examine the validity of Section 106 of the Act. As already noticed, this provision is not the charging section, but is the mechanism section, and is ancillary to Section 5 of the Act. What this provision plainly says is that every person or body responsible for paying the bills in respect of works contract shall deduct in advance, tax from the bill of the contractor at the rate of 12.5 per cent after allowing percentage of deduction from the work value as prescribed in Schedule IVA to the Act. The percentage of deduction so allowed is confined to those prescribed in Schedule IVA to the Act and no other. No deduction/exemption of sales tax is also permissible for transfer of property in goods (whether as goods or in some other form) involved in the execution of works contract which will constitute a sale in the course of inter-State trade or commerce or sale outside the State of Meghalaya or a sale in the course of import into or export out of the territory of India. Section 8 of the Act exempts the sale of goods listed in Schedule I appended to the Act subject to conditions and exceptions set out therein, etc., from payment of sales tax. On the other hand, the charging section, namely, Section 5(2) clearly provides that the taxable turnover must be arrived at after deducting from the gross turnover (a) sales of goods declared as exempted under Section 8(1) (a), (b) sales of goods in the course of inter-State trade or commerce, (c) sales outside Meghalaya, (d) sales in the course of import and export and (e) charges towards labour services and other like charges if they are ascertainable from the terms and conditions of the contract. As indicated earlier, Section 106 is the mechanism section and is ancillary to the charging section, namely, Section 5. When the liability to tax under Section 5 is on taxable turnover, the deduction of tax at source should also be in terms of the taxable turnover. In other words, Section 106 does not provide any mechanism for confining the quantum of advance tax to the tax attributable to the taxable turnover : it should conform to the charging section. Sub-section (1) of Section 5 provides that subject to the provision of the Act and Rules, a tax shall be levied on the turnover of sales of goods specified in Schedules II, III and IV to the Act at every point of sale of such goods within the State at the rate specified therein. Sub-section (2) thereof explains the turnover of sales which is liable to sales tax by saying that taxable turnover on the sale of goods under Sub-section (1) of Section 3 shall be part of the gross turnover of sales during any period which remains after making the following deductions, namely, (a) sale of goods declared as exempted under Section 8(1)(a), (b) sale of goods which are shown to the satisfaction of the Commissioner to have taken place (i) in the course of inter-State trade or commerce, (ii) sales outside the State of Meghalaya or (iii) sale in the course of import into or export out of the Territory of India. A conjoint reading of Clause (a), (b) of Sub-section (2) of Section 5 and Clause (c) of Sub-section (2) of Section 5 unmistakably reveals that the taxable turnover upon which sales tax is to be levied under Sub-section (1) of Section 3 excludes (i) sales of goods declared as exempted under Section 8(1) (a), (ii) sales of goods which take place in the course of inter-State trade or commerce, (iii) sales of goods outside Meghalaya and (iv) sales of goods in the course of the import and export, but in the case of works contract, only the charges towards labour, services and other like charges are to be deducted. It is evidently clear that in respect of works contract also, deduction or exemption should be admissible in respect of sales of goods exempted under Section 8(1)(a), sale of goods in the course of inter-State trade or commerce, sales of goods outside the State of Meghalaya and sales of goods in the course of import and export. In our opinion, Section 106 cannot override the charging section, and what is forbidden in the charging section is also forbidden in the mechanism section.
14. It is, however, contended by Mr. B.P. Todi, the learned Additional Advocate-General, that the proviso to Section 106(2) of the Act meets the apprehension of the petitioner that there is no internal mechanism for avoidance of advance tax and is thus contended by him that if the dealer produces a certificate as prescribed from the Commissioner of Taxes that he has no liability to pay tax or that he has paid tax payable by him or due from him, he will be exempted from the advance tax in so far as sales of goods declared as exempted goods under Section 8(1)(a), sales of goods taking place in the course of inter-State trade or commerce or in the course of import and export or sales taking place outside Meghalaya. In our opinion, such contention cannot be accepted. It is incomprehensible as to how a contractor can procure a certificate from the Commissioner of Taxes that he has no liability to pay tax or that he has paid tax payable by or due from him when, as already noticed, the mechanism section, namely, Section 106(2) does not make any provision for deduction of the exempted goods such as inter-State sales, import sales, export sales, outside State sales and other exempted goods. It must be a remarkable Commissioner of Taxes who would go out of the way to apply the charging section for deduction of the exempted goods, ignore the clear mandate of Section 106(2) and then proceed to issue such a certificate on the basis of the proviso to Section 106(2). Therefore, the internal mechanism for avoidance of advance tax in respect of exempted goods harped upon by the learned Advocate-General is practically non-existent or is otherwise illusory. What is forbidden by the Constitution is that the State Legislature shall not pass legislation for imposition of sales tax in respect of declared goods, deemed sales in the course of inter-State trade or commerce or deemed sales taking place outside the State or deemed sales in the course of import into or export out of the territory of India. In other words, the State Legislature cannot pick forbidden fruits under the guise of tax deduction at source, which is forbidden by Article 286 of the Constitution read with Sections 14 and 15 of the Central Sales Tax Act, 1956 and promise to refund the amount at the time of final assessment. The tax liability with reference to a works contract can arise only on the taxable turnover which will be arrived at after excluding turnover pertaining to inter-State sales, import sales, outside the State sales, exempted goods, tax suffered goods, labour charges and payment to sub-contractors. As already noticed, the power of the States to levy sales tax is traceable to entry 54 of List II of the Seventh Schedule to the Constitution. Such power is circumscribed by the limitations contained in Article 286 of the Constitution, which are that no tax can be imposed on sale or purchase taking place outside the State or in the course of import into or export out of India or in the course of inter-State trade or commerce. The law is now well-settled that the limitation of the taxing power of the States by way of sales tax is absolutely different from the power of the Centre to levy income-tax traceable to entry 82 of List I of the Seventh Schedule to the Constitution, which is virtually unfettered.
15. To summarize the foregoing discussion, a combined reading of Section 106(2) and the charging section, namely, Section 5(2) of the Act leaves no room for doubt that the person responsible for paying any sum to a contractor for carrying out any works contract which involves the transfer of property in goods ('the contractee' for convenience) is obliged to deduct, at the time of credit of that sum to the account of the contractor or payment thereof to him, an amount 'at the rate of 12.5 per cent after allowing percentage of deduction from the work value as prescribed in Schedule IVA appended to the Act', provided the value of the work exceeds rupees one lakh. The permissible deduction prescribed in Schedule IVA to the Act, as already explained earlier, is referable only to the proviso to Section 5(2)(c) of the Act, namely, where the amount of charges towards labour, services and other like charges in such contract are not ascertainable from the terms and conditions of the contract. Except for this, the deduction, therefore, is towards the sales tax that is payable to the State upon the total value of the works contract and it is of 12.5 per cent of the total value of the works contract. Sub-section (3) of Section 106 provides that any tax deducted under Sub-section (2) shall be paid to the account of the State Government in such manner and within such time as may be prescribed. Sub-section (4) of Section 106 requires the contractee to grant to the contractor a certificate in respect of such deduction to the payee in such manner and in such form and within such time as may be prescribed. Under Sub-section (5) of Section 106, it is declared that any tax deducted under Sub-section (2) and paid to the account of the State Government shall, on production of the certificate of tax deduction under Sub-section (4) by the contractor, be deemed to be tax paid by the contractor for the relevant period and shall be given credit in his assessment accordingly. Then, rule 42 of the Rules provides for, among others, refund of the excess amount deducted at source in respect of works contract and payment of interest by the Commissioner for delayed payment of refund. On closer scrutiny of Section 106 of the Act, it becomes crystal clear that for the purpose of deduction of the State sales tax at source on the value of the works contract, neither the Commissioner nor the contractee, who issues the tax deduction certificate is required or entitled to take into account the fact that the works contract involves transfer of property in goods consequent upon an inter-State sale, an outside sale or a sale in the course of import. In other words, there is no express provision in the impugned section obligating the contractee or the Commissioner to take into account the deductions mandated by the charging section, namely, Section 5 (2) (a), (b) and (c) of the Act. All that the impugned section says is that the contractee is to deposit towards the contractor's liability to State sales tax at 12.5 per cent of such amount as he credits or pays to the contractor, regardless of the fact that the value of the works contract may include the value of inter-State sales, outside sales or sales in the course of import. In the view that we have taken, we have no hesitation to hold that the provisions of Section 106 are beyond the legislative competence of the State Legislature since the State Legislature is prohibited by entry 92A of the Union List read with Article 286 of the Constitution from making any law for levying sales tax on inter-State sales, outside sales or sales in the course of import.
16. Even though adjustment is possible at the time of assessment, it is not permissible for the State Legislature to impose advance tax which is not exigible to tax. The ultimate test is whether the State Legislature is having the legislative competence to impose tax deduction at source on the total value of the works contract without making provision for deduction of the value of sales of declared goods exempted under Section 8(1)(a) of the Act, of sales taking place outside the State or sales taking place in the course of inter-State trade or commerce or sales taking place in the course of import or the charges towards labour, services and other like charges if they are ascertainable from the terms and conditions of the contract. The answer is obviously 'No' on the authority of Gannon Dunkerley : [1993] 88 STC 204 (SC) : [1993] 1 SCC 364. Tax deduction at source being only a machinery provision, it needs to strictly conform to the charging section and cannot permit tax deduction or collection in respect of exempted goods. This is the mandate of Gannon Dunkerley : [1993] 88 STC 204 (SC) : [1993] 1 SCC 364. Such deduction or collection cannot even be for a short time with the assurance that the excess will be refunded in course of time after assessment. In Bhawani Cotton Mills Ltd. v. State of Punjab : [1967] 20 STC 290 (SC) : AIR 1967 SC 1616, the top court held:. If a person is not liable for payment of tax at all, at any time, the collection of a tax from him, with a possible contingency of refund at a later stage, will not make the original levy valid; because, if particular sales or purchases are exempt from taxation altogether, they can never be taken into account, at any stage, for the purpose of calculating or arriving at the taxable turnover and for levying tax.
17. Prima facie, Section 106 of the Act is ultra vires entry 92A read with Article 286 of the Constitution, and is liable to be struck down as unconstitutional. However, looking at the legislative history of the Act, drawing of an inference that the defect is not intentional but is the result of defective drafting, has become irresistible as well as inevitable. The State Legislature has widened the meaning of the term 'sale' by including within its sweep the concept of transfer of property in goods (whether as goods or in some other form) involved in the execution of works contract ('deemed sale'). Therefore, the term 'sale' upon which tax is to be levied under Section 5 of the Act covers deemed sales, and is, therefore, governed by, and is subject to, Section 5(2) including the deductions referred to therein. In other words, when Section 106 of the Act was inserted by the Meghalaya Value Added Tax (Amendment) Act, 2005, it must have escaped the attention of the State Legislature to incorporate therein the deductions mandated by entry 92A of Union List read with Article 286 of the Constitution in respect of inter-State sales, outside sales, import sales, etc., on the mandates of Gannon Dunkerley : [1993] 88 STC 204 (SC) : [1993] 1 SCC 364. It could not have been the intention of the Legislature to enact the impugned provision, which is not in conformity with, or is at variance with the charging section, namely, Section 5 of the Act. There is no apparent reason why the Legislature makes a distinction between the components of sales tax in respect of normal sales and deemed sales even for the purpose of advance tax. In the words of Denning, L.J. See Seaford Court Estates Ltd. v. Asher [1949] 2 All ER 155 at 164, which has been cited with approval by the apex court, '...when a defect appears a judge cannot simply fold his hands and blame the draftsman. He must set to work on the constructive task of finding the intention of Parliament, and then he must supplement the written words so as to give 'force and life' to the intention of the Legislature... A judge should ask himself the question how, if the makers of the Act had themselves come across this ruck in the texture of it, they would have straightened it out?. He must then do as they would have done. A judge must not alter the material of which the Act is woven, but he can and should iron out the creases'. His Lordship, Krishna Iyer, J., in Maharao Sahib Shri Bhim Singhji v. Union of India : [1981] 1 SCC 166, in his inimitable words has said:.reading down meanings of words with loose lexical amplitude is permissible as part of the judicial process. To sustain a law by interpretation is the rule. To be trigger-happy in shooting at sight every suspect law is judicial legicide. Courts can and must interpret words and read their meanings so that public good is promoted and power misuse is interdicted.
18. The true legal position is reiterated by the apex court in a recent decision of M. Rathinaswami v. State of Tamil Nadu : [2009] 5 SCC 625, in the following terms:
28. It is well-settled that to save a statutory provision from the vice of unconstitutionality sometimes a restricted or extended interpretation of the statute has to be given. This is because it is a well-settled principle of interpretation that the courts should make every effort to save a statute from becoming unconstitutional. If on giving one interpretation the statute becomes unconstitutional and on another interpretation it will be constitutional, then the court should prefer the latter on the ground that the Legislature is presumed not to have intended to have exceeded its jurisdiction.
29. Sometimes to uphold the constitutional validity the statutory provision has to be read down. Thus, in Umayal Achi v. Lakshmi Achi : AIR 1945 FC 25, the Federal Court was considering the validity of the Hindu Women's Rights to Property Act, 1937. In order to uphold the constitutional validity of the Act, the Federal Court held the Act intra vires by construing the word 'property' as meaning 'property other than agricultural land'. This restricted interpretation of the word 'property had to be given otherwise the Act would have become unconstitutional.
30. Similarly, in Kedar Nath Singh v. State of Bihar : AIR 1962 SC 955 this Court had to construe Section 124A of the Penal Code which relates to the offence of sedition which makes a person punishable who 'by words, either spoken or written, or by signs, or by visible representation, or otherwise, brings or attempts to bring into hatred or contempt, or excites or attempts to excite disaffection towards, the Government established by law'. This court gave a restricted interpretation to the aforesaid words so that they apply only to acts involving intention or tendency to create disorder or disturbance of law and order or incitement to violence. This was done to avoid the provisions becoming violative of Article 19(1)(a) of the Constitution which provides for freedom of speech and expression.
19. The underlying principle which can be culled out from the foregoing discussion is that where the language of the statute leads to manifest contradiction of the apparent purpose of the enactment, the court can, of course, adopt a construction which will carry out the obvious intention of the Legislature. But we must hasten to add that in the course of construction of the relevant provisions, there must be manifest contradiction or ambiguity or defect or omission. Judging the provisions of the mechanism section, i.e., Section 106 and the charging section, namely, Section 5 of the Act on the touchstone of the aforesaid legal principles, we are of the considered opinion that there is apparent contradiction between these two provisions. The width and amplitude of the machinery or ancillary provision has become larger than the charging section, which is clearly unwarranted. The easy way out is, no doubt, to simply quash the impugned provision as it is found to have transgressed the constitutional limitations imposed by entry 92A of the Union List read with Article 286 of the Constitution, which is impermissible. But our endeavour must always at first be to save the impugned provision from the vice of unconstitutionality and not 'to be trigger-happy shooting at sight every suspect law' as that would amount to 'judicial legicide'. If, on giving one interpretation, the statute becomes unconstitutional and, on another interpretation, it will be constitutional, then this Court should prefer the latter on the ground that the Legislature is presumed not to have intended to have exceeded its legislative powers. Sometimes to uphold the constitutional validity, the statutory provision has to be read down. Thus, the apparent contradiction between Section 106(2) and Section 5(2) of the Act can be harmonized by reading the words 'of the taxable turnover referred to in Section 5(2) of the work value' after the numerals/figures '12.5 per cent' in Section 106(2) of the Act. This restrictive interpretation has become imperative so as to save the impugned provision from becoming violative of entry 92A of the Union List read with Article 286 of the Constitution, which prohibits imposition of sales tax by the State Legislature upon declared goods of special importance, sales in the course of inter-State trade or commerce, sales outside State and sales in the course of import into, or export out of, the Territory of India. While imposing sales tax on deemed sales, the State-respondents shall always keep in mind the principles laid down by the top court in paragraph 51 (page 237 of STC) of Gannon Dunkerley case : [1993] 88 STC 204 (SC) : [1993] 1 SCC 364 in order to save the sales tax from unconstitutionality.
20. Having discussed the common question of law involved in this batch of writ petitions, we may now notice individual facts of the cases before us.
W.P. (C) No. 282 (SH) of 2008:
21. The petitioner is a proprietorship firm, which is carrying on the business of works contract with the respondents since 2005. The firm is registered as class I contractor under the Public Works Department (Building), Shillong and is an assessee under the sales tax authorities of the State of Meghalaya vide Tax Identification No. 17031068038. The Commissioner of Taxes, Meghalaya (respondent 2) issued the letter dated June 2, 2005 directing the Chief Engineer (Air Force), Shillong Zone, Shillong (respondent 4) to implement the impugned provision of the Meghalaya Value Added Tax Act, 2003 and deduct tax at source. The impugned provision herein is undoubtedly similar to the one already adjudicated upon in W.P. (C) No. 48(SH) of 2007. No separate discussion is, therefore, called for.
W.P. (C) No. 194(SH) of 2006.
22. In this writ petition, both the petitioners are registered contractors under the Directorate General of Assam Rifles, Shillong with their registration number as DGAR 337(A) of 1996 and DGAR 486(C) of 2005, respectively. They are regularly executing various works contracts in Meghalaya on behalf of the Directorate General of Assam Rifles. It is claimed by the petitioners that they have been verbally informed by the Directorate General of Assam Rifles that a lumpsum equivalent to 12 per cent from their bills pertaining to their works contract issued by them would be deducted at source in accordance with Section 106 of the Meghalaya Value Added Tax Act, 2003. This is how they filed this writ petition. As the validity of the impugned provision has been decided in W.P. (C) No. 48(SH) of 2007, the need for adjudication of this writ petition stands obviated.
W.P. (C)No. 81 (SH) of 2007.
23. In this case, the petitioner is a proprietary concern under the name and style of 'M/s. Krishna Enterprise', which is registered as class E contractor with respondent Nos. 2, 3 and 4, and is also a registered dealer with the sales tax authority of the State of Meghalaya as well as the Central Sales Tax Authority. The firm is executing several works contracts on behalf of respondent Nos. 2, 3 and 4 within the Territory of Meghalaya. The petitioner is also challenging the vires of Section 106 of the Meghalaya Value Added Tax Act, 2003. In our considered opinion, the law declared by us in the foregoing W.P. (C) No. 48(SH) of 2007 will govern this writ petition, and no further adjudication is considered necessary.
W.P. (C) No. 44(SH) of 2007.
24. The petitioner is an association of contractors registered under the Meghalaya Societies Registration Act, 1983 under Certificate of Registration bearing No. E. 16(Rs)8 of 2005/292 having its registered office at Cleave Colony, CPWD Complex, Shillong. Members of the petitioner-society are engaged in execution of various works contracts in the State of Meghalaya on behalf of the Central Public Works Department. In this writ petition, the petitioner is also questioning the constitutionality of Section 106 of the Meghalaya Value Added Tax Act, 2003. In our judgment, the decision rendered by us in W.P. (C) No. 48(SH) of 2007 will squarely govern this writ petition.
W.P. (C) No. 235(SH) of 2007.
25. In this writ petition, the petitioner is a registered supplier of Military Engineering Service of the Government of India, and is also executing the works contract on behalf of respondent Nos. 1 and 2. The constitutional validity of Section 106 of the Meghalaya Value Added Tax Act, 2003 is also questioned by the petitioner in this writ petition. As the validity of the impugned provision has been decided by us in the forgoing W.P. (C) No. 48(SH) of 2007, no separate adjudication upon this question is necessary.
W.P. (C) No. 237(SH) of 2007.
26. The constitutionality of Section 106 of the Meghalaya Value Added Tax Act, 2003 is also under challenge in this writ petition filed by the petitioner. The petitioner is a partnership firm and is an enlisted contractor with respondent Nos. 1, 2 and 3, who are doing works contracts with these respondents in the North Eastern Hills University. They are registered as a dealer with the sales tax authority of the Government of Meghalaya. As the question raised in this writ petition has been squarely dealt with by us in W.P. (C) No. 48 (SH) of 2007, the need for separate discussion stands obviated.
W.P. (C) No. 146 (SH) of 2007.
27. The petitioner in this case is an association of contractors and suppliers registered under the Meghalaya Societies Registration Act, 1983, and are carrying on construction on behalf of respondent Nos. 1 to 3 in the North-Eastern Hills University. Aggrieved by the deduction of tax at source from the bills in respect of the works contract undertaken by them with respondent Nos. 1 to 3 in accordance with Section 106 of the Meghalaya Value Added Tax Act, 2003, they are filing this writ petition. As already noted, the validity of the impugned provision has been decided in W.P. (C) No. 48(SH) of 2007, we do not think it necessary to deal with the same question of law.
W.P. (C) No. 258(SH) 2007.
28 In this writ petition also, the petitioner is questioning the validity of Section 106 of the Meghalaya Value Added Tax Act, 2003. The petitioner is an association of contractors registered under the Meghalaya Societies Registration Act, 1983, enlisted as contractors with respondent Nos. 3 to 13 and are executing works contract under those respondents. This writ petition, as in the preceding cases, will be governed by the law laid down by us in W.P. (C) No. 48(SH) of 2007, and the need for separate adjudication is thus obviated.
W.P. (C) No. 7(SH) 2007.
29. The vires of Section 106 of the Meghalaya Value Added Tax Act, 2003 is again under challenge in this writ petition filed by the petitioners. The petitioners are also contractors as in the preceding cases. Needless to say, this writ petition will be governed by our decision in W.P. (C) No. 48(SH) 2007.
W.P. (C) No. 305(SH) 2007.
30. The petitioners numbering six in this writ petition also challenge the vires of Section 106 of the Meghalaya Value Added Tax Act, 2003. They are contractors enlisted with respondent Nos. 2, 3, 4 and 5 and are engaged in executing works contracts on behalf of those respondents. Since the impugned provision is one and the same as in W.P. (C) No. 48 (SH) 2007, it is not necessary for us to deal with this issue separately as the principles laid down therein are squarely applicable to this case.
W.P. (C) No. 4(SH) 2009.
31. The petitioner in this writ petition is also questioning the constitutionality of Section 106 of the Meghalaya Value Added Tax Act, 2003.
W.P. (C)No. 59(SH) of 2007.
32. The petitioner in this writ petition is a registered partnership firm, is a clause E registered contractor with respondent Nos. 2 to 4 under MES Registration No. A-32. It is also registered as a dealer with the sales tax authority of the Government of Meghalaya as well as under the Central sales tax authority vide CST No. 17040608279 dated January 18, 2007. It is also challenging the vires of Section 106 of the Meghalaya Value Added Tax Act, 2003 as in the preceding writ petitions. Our decision in W.P. (C) No. 48(SH) of 2007 shall also govern this writ petition.
33. Resultantly, we hold that the impugned Section 106 of the Meghalaya Value Added Tax Act, 2003, is intra vires the Constitution of India. The impugned provision shall, however, be read down in the manner indicated in W.P. (C) No. 48(SH) of 2007. Consequently, the State-respondents or the person or persons or body responsible for making tax deduction at source shall hereafter deduct the advance tax at the rate of 12.5 per cent only from the taxable turnover of the value of the works contract of all the petitioners of these 13 (thirteen) writ petitions. Excess payments, if any, on account of the tax deductions at source made by any of the respondents heretofore in terms of the interim orders of this Court shall be refunded to all the petitioners at once along with the interest admissible under the law. Conversely, if there is any deficiency in the collection towards deduction of tax at source in terms of the interim orders, it shall be open to the State-respondents to recover the same from each of the petitioners in the manner permissible by law. The writ petitions are disposed in the above terms, but without costs.