N.P Singh, J.:— This writ application was filed on behalf of the petitioner questioning the validity of the Constitution (Forty-sixth amendment) Act, 1982 (hereinafter referred to as ‘the 46th Amendment’) by which clause (29-A) was inserted in Article 366 of the Constitution. The petitioner also sought a declaration that Rule 26A of the Bihar Sales Tax Rules, 1983 (hereinafter referred to as ‘the Rules’) was ultra vires and as such no deduction under section 25A of the Bihar Finance Act, 1981 (hereinafter referred to as ‘the Act’) can be made from the amount payable for execution of a works contract by the persons or authorities making such payment in respect of the contract in question.
2. The relevant part of clause (29-A) aforesaid which was introduced by the 46th Amendment in Article 366 of the Constitution is as follows:—
“Tax on the sale or purchase of goods” includes—
(a) xxxxx
(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;”
3. After the amendment aforesaid, different States amended the Acts relating to payment of tax on sale and purchase of goods to cover transfer of property in goods, whether as goods or in some other form involved in the execution of a works contract and for deduction of the amount of tax so payable by the person or authority making payment at the rate prescribed.
4. So far the Act with which we are concerned, section 25A was introduced by the Bihar Finance Act, 1984. The relevant part of section 25A is as follows:—
“25A. Tax deductions from the Bills/invoices for the works contractors.
(1) Notwithstanding anything contained in section 26, every person making any payment or discharge of any liability on account of valuable consideration payable for the transfer of property in goods, whether as goods or in some other form, involved in the exception of works contract shall be lawfully competent to deduct an amount not excluding four percentum purporting to be a part or full of the tax payable on such sales, from the bills or invoices raised by the works contractor as payable by the person:
Provided that no such payment or discharge of any bill raised by a works-contractor shall be made without deduction referred to in sub-section (1):
Provided further that if the State Government is satisfied that it is necessary to do so in the interest of the State revenue it may notify the names/posts of such persons who shall be lawfully competent person to make such deduction as referred to in sub-section (1).
(2) The deduction referred to in sub-section (1) shall be made in the manner which may be prescribed.”
5. As section 25A(2) required the manner in which deduction under sub-section (2) of section 25A is to be prescribed, Rule 26A was introduced in the Rules prescribing the manner of deduction of tax from the bills/invoices of the works contractors under section 25A. Rule 26A(1) and (2) are as follows:—
“26A. (1) The deduction referred to in sub-section (1) of section 25A shall be made at the rate notified in this behalf from time to time by the Government.
(2) Such deduction shall be made from all payments being made in respect of all works contracts executed, whether in part or in full, after 1st April, 1984 provided the total value of works contracts exceeds Rs. 25,000.”
6. Sub-rule (1) of Rule 26A requires a rate to be notified at which deduction referred to in sub-section (1) of section 25A is to be made. Sub-rule (2) thereof enjoins persons making payment in respect of works contracts to deduct the fax referred to in section 25A at the rates notified from “all payments being made in respect of all works contracts executed, whether in part or in full,……” if the total value of works contracts exceeds Rs. 25,000.
7. During the pendency of this writ application, the validity and the scope of clause (29-A)(b) of Article 366 was examined by the Supreme Court in the case of Builders Association of India v. Union of India (AIR 1989 Supreme Court 1371.: 1989 PLJR (SC) 31). It was pointed out that even after the decision of the Supreme Court in the case of State Of Madras v. Gannon Dunkerley & Co., (Madras) Ltd (AIR 1958 Supreme Court 560) where an agreement for construction of a building consisted of two parts, one relating to the sale of materials used in the construction of the building by the contractor to the person who had assigned the contract and the other part dealing with the supply of labour and services, sales tax was leviable on the goods which where agreed to be sold under the first part. However, sales tax could not be levied when the contract in question was a single and indivisible works contract. To meet that situation clause (29-A)(b) has been introduced in Article 366 of the Constitution. About the effect of such amendment it was pointed out as follows:—
“After the 49th Amendment the works contract which was an indivisible one is by a legal fiction altered into a contract which is divisible into one for sale of goods and the other for supply of labour and services. After the 46th Amendment, it has become possible for the States to levy sales tax on the value of goods involved in a works contract in the same way in which the sales tax was leviable on the price of the goods and materials supplied in a building contract which had been entered into in two distinct and separate parts as stated above. It could not have been the contention of the revenue prior to the 46th Amendment that when the goods and materials had been supplied under a distinct and separate contract by the contractor for the purpose of construction of a building the assessment of sales tax could be made ignoring the restrictions and conditions incorporated in Art. 286 of the Constitution. If that was the position can the States contend after the 46th Amendment under which by a legal fiction the transfer of property in goods involved in a works contract was made liable to payment of sales tax that they are not governed by Art. 286 while levying sales tax on sale of goods involved in a works contract? They cannot do so. When the law creates a legal fiction such fiction should be carried to its logical end. There should not be any hesitation in giving full effect to it. If the power to tax a sale in an ordinary sense is subject to certain conditions and restrictions imposed by the Constitution, the power to tax a transaction which is deemed to be a sale under Art. 366(29A) of the Constitution should also be subject to the same restrictions and conditions”
8. The stand of the State Governments that after introduction of clause (29-A)(b) in Article 366 of the Constitution tax is not only to be levied on the goods and materials which had been supplied in execution of the works contract but on total amount paid or payable in connection with that contract was repelled as follows:—
“In view of the foregoing statements with regard to the passing of the property in goods which are involved in works contract and the legal fiction created by clause (29A) of Art. 366 of the Constitution it is difficult to agree with the contention of the States that the properties that are transferred to the owner in the execution of a works contract are not the goods involved in the execution of the works contract, but a conglomerate, that is the entire building that is actually constructed. After the 46th Amendment it is not possible to accede to the plea of the States that what is transferred in a works contract is the right to the immovable property.”
9. Now a tax is to be levied on the transfer of property in goods whether as goods or in some other form, involved in the execution of a works contract. Even where a works contract is single or indivisible, i.e, it is not separate in parts, one relating to sale of materials used in the construction of the building by the contractor and the other dealing with supply of labour and services, in view of the fiction introduced by the aforesaid constitutional amendment, tax has to be levied only on the transfer of property in goods whether as goods or in some other form involved in the execution of a works contract. As such tax is not to be levied in respect of payment made for supply of labour and services where no transfer of property in goods is involved.
10. On behalf of the petitioner it was pointed out that so far section 25A is concerned, it clearly speaks about deduction to be made from any payment “on account of valuable consideration payable for the transfer of the property in goods, whether as goods or in some other form, involved in the execution of a works contract” which is consistent with Article 366(29-A)(b). But Rule 26A(2) directs deduction to be made “from all payments being made in respect of all works contracts executed, whether in part or in full,………”. In other words, in view of Sub-rule (2) of Rule 26A, deductions have to be made from all payment being made in respect of all works contracts which will include even payment made on account of labour charges and other similar services rendered by the contractor. As such Sub-rule (2) of Rule 26A is ultra vires being not only beyond the scope of Article 366(29-A)(b) of the Constitution but also beyond the limit prescribed by section 25A in respect of deduction from payment to be made to the contractor in connection with a works contract.
11. The contention on behalf of the petitioner is well founded. If the words “all payments” are to be read to mean all payments including the amount paid on account of labour charges and other services rendered by the contractor, then Sub-rule (2) of Rule 26A has to be held to be invalid and unconstitutional.
12. It is a well-settled principle of interpretation of statute that if without doing violence to the language of any provision of the Act or the Rule it can be interpreted in a manner which pan make it valid and constitutional that interpretation should be given. As such, in my view, the words “all payments being made in respect of all works contracts executed” used in Sub-rule (2) of Rule 26A has to be read to mean payments made for the transfer of property in goods whether as goods or in some other form, involved in the execution of a works contract. If that interpretation is given, then deductions have to be made only out of payments to be made for the transfer of property in goods, involved in the execution of a works contract and no deduction is to be made in respect of the amount spent over labour charges and other services in which no transfer of any property in goods is involved. This interpretation of the words “all payments” shall not only be consistent with section 25A of the Act but also with the aforesaid judgment of the Supreme Court in the case of Builders Association of India v. Union of India (supra). It need not be pointed out that Sub-rule (2) of Rule 26A cannot cover a field beyond prescribed by section 25A and Article 366(29-A)(b) of the Constitution.
13. It will be advisable on the part of the framers of the Rule to amend Sub-rule (2) of Rule 26A in a suitable manner, so that it becomes explicit and in tune with section 25A of the Act. But even in absence of such amendment, as I have already held above, the words “all payment” mean only payments made for transfer of property in goods, whether as goods or in some other form, involved in the execution of a works contract. Now the respondents shall proceed to make deductions from the bills of the petitioner in the light of this judgment in exercise of the power under Rule 26A of the Act.
14. This writ application is accordingly, allowed to the extent indicated above. In the circumstances of the case, there shall be no order as to costs.
15. N. Pandey, J.:—I agree.
section 25A and Article 366(29-A)(b)