Jagat Narayan, J.C.
1. These are four connected writ applications under Art. 226 of the Constitution. By these petitions the assessment of sales tax on the supply of materials used in the execution of contracts for the Public Works Department and private parties is challenged. The petitions have been contested on behalf of the State. I have heard the Learned Counsel for the petitioners and the learned Government Advocate.
2. The fourth section of Madhya Pradesh Sales Tax Act, 1947 as extended to the State of Vindhya Pradesh is the charging section. The definition of "dealer" includes a person who carries on the business of "supplying goods"; "contract" includes the carrying out construction, improvement or repair of any building, road, bridge or other immovable property; "goods" include all materials to be used in the construction, improvement or repair of immovable property. "Sale" is defined as follows:
"Sale" with all its grammatical variations and cognate expressions means any transfer of property in goods for cash or deferred payment or other valuable consideration, including a transfer of property in goods made in the course of the execution of a contract, but does not include a mortgage, hypothecation, charge or pledge.
"Sale price" includes price payable to a dealer as valuable consideration for the carrying out of any contract less such portion representing the proportion of the cost of labour to the cost of materials used in carrying out such contract as may be prescribed.
"Turnover" includes the aggregate of sale price and parts of sale prices received or receivable by a dealer in respect of the supply of goods in the carrying out of any contract.
These definitions extend the operation of the Act to the supply of material used in the execution of works by contractors.
3. Entry No. 54, List II 7th schedule of the Constitution reads "taxes on the sale for purchase of goods other than newspapers"; the corresponding item No. 48 of List II in Government of India Act, 1935 was worded "taxes on the sale of goods and on advertisements". The State Legislature is thus empowered only to levy a tax on the sale of goods on the basis of the price actually paid for them. It is not empowered to levy a tax on the payment made to a contractor for a completed work.
Apart from the cost of material this payment includes cost of labour, cost of supervision in getting the work executed and the profit of the contractor. Under S. 2 (h) (ii) "sale price" has been defined as the amount payable to a dealer as valuable consideration for the carrying out of any contract less such portion representing the proportion of the cost of labour to the cost of materials used in carrying out such contracts as may be prescribed. Rule 7 which prescribes this proportion reads.
Taxable turnover in respect of contracts.- In calculating the sale price for the purpose of sub-cl. (ii) of Cl. (h) of S. 2 of the Act, a dealer may be permitted to deduct from the amount payable to him as valuable consideration for carrying out a contract, a sum not exceeding such percentages as may be fixed by the Commissioner for different areas subject to the following maximum percentages, namely:
(a) In the case of an electrical contract... 20 %
(b) In the case of structural contract... 30 %
(c) In the case of sanitary or gas contract "33 1/3%
(d) In the case of overhaul or repair of any motor vehicle... 60 %
(e) In the case of contracts of road construction
(1) Earthen roads.... 90 %
(2) Other roads "....60%
(f) In the case of other contracts... 30%
The petitioners have been assessed to sales tax on payments received by them for execution of the works contracts on the basis of the above provision. As the cost of material in every case is not 70% of the total payment received by the contractor the result is that under colour of levying a tax on the sale of goods a tax is levied also on cost of labour, cost of supervision and contractor''s profit which is ultra vires of the State Legislature.
I accordingly hold that the definition of "sale price" in S. 2 (h) (ii), Madhya Pradesh Sales Tax Act, 1947 as extended to the State of Vindhya Pradesh and Rule 7 of the Vindhya Pradesh Sales Tax Rules 1954 are invalid. The same view was taken in - ''Pandit Banarsi Das v. State of Madhya Pradesh'', 1955 6 STC 93 (Nag) (A).
4. The petitioner in writ petition No. 62 carries on hardware business as well. He filed returns only in respect of this business. He did not show payments received on account of contracts in his returns. Whatever money he paid was therefore on account of sales tax in respect of hardware business. He was assessed to a tax of Rs. 415/10/- on his contract business under order dated 23-3-55. I declare the assessment order to be illegal only with regard to this sum.
The total amount of tax shown as outstanding against him is Rs. 641/15/9. I direct that the sum of Rs. 415/10/- shall not be recovered from him under the assessment order dated 23-3-55. The amount assessed on his hardware business can be recovered and the stay order in respect of it is discharged.
5. In writ petition No. 63 a sum of Rs. 151/9/- was assessed in respect of other sales and a sum of Rs. 1198/4/- in respect of contract business. I declare the assessment of Rs. 1198/4/- on the contract business to be illegal. A sum of Rs. 315/12/3 is still outstanding against the petitioner. I direct that this sum shall not be recovered from him on the basis of the assessment order dated 3-9-52.
6. In writ petitions No. 64 and No. 65 the assessments related to contract business alone. I declare them to be illegal and direct that the balance outstanding against the petitioners on the basis of the assessment orders dated 27-3-55 and 24-4-55 respectively should not be recovered.
7. It would be open to the State to revise the assessments of the petitioners and levy tax on the price of materials used in the execution of the works and recover it.
8. The petitions are accordingly allowed in part as indicated above. The parties shall bear their own costs.
