LexBUILDERS' ASSOCIATION.OF INDIA versus STATE OF KARNATAKA AND OTHERS
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BUILDERS' ASSOCIATION.OF INDIA
v.
STATE OF KARNATAKA AND OTHERS
NOVEMBER 17, 1992
[M.H. KANIA, CJ, J.S. VERMA, S.C: AGRAWAL, YOGESHWAR
DAY AL AND DR. A.S. ANAND, JJ.)
Kamataka Sales Tax Act, 1957/Kamataka Sales Tax Rules: Sections
2(m), (n) (t) (u), 5-B, 6 and Sixth Schedule/Rule 6(4}-Works Con-
C tract--Categorisation-Deduction of amount towards labour and other char-
ges-Prescribing different percentage of value of contract-whether penni-
ssi~Transfer of property in goods involve~ in execution of works con-
tract-Deemed sa/es-Fmng situs thereof-Vaijdity of.
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Constitution_ of India, 1950 : Articles 14, 136, 366(29-A)(b) and
Seventh Schedule List II Entry 54-Enactinent of Kamataka Sales Tax Act,
1957-Section SB r/w Sixth Schedule-Legislative competence of-Levy of
different rates of tax for particular type of works contract-Whether arbitrary
and discriminatory-Appeal-Special Leave jurisdiction--R.aising of new plea
for the first time--Whether could be pennitted.
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The appellant is an association of contractors engaged in the work
of construction; filed a writ petition bef9re the High Court challenging the
validity of various provisiOns of the Karnataka Sales Tax Act, 1957 as
amended by the Amending Act of 1985 and the Karnataka Sales Tax
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Rules. However, during the course of arguments, the appellant confined
its challenge to the validity of Explanation 3(e) to S.2(t) and Section 5-B
of the Karnataka Sales Tax Act read with Sixth Schedule thereof.
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The High Court dismissed the Writ Petition and the appellant
preferred the present appeal.
On behalf of the appellant, it was contended that clause(c) of
Explanation 3 to Section 2(t) of the Act which fixes the situs of sales has
the effect of converting a transfer which is an inter-state sale or sale
outside the State within the meaning of Sections 3 and 4 of Central Sale~
H Tax Act into an inside sale and thereby subjecting the same to levy of tax
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BUILDERS' ASSCN. v. STATEOFKARNATAKA
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under the Act which is beyond the legislative competence of the State A
Legislature under Entry 54 of State List read with Art.366(29-A) (b); that
Section 5-B read with Sixth Schedule is invalid since tax is levied on the
basis of the value of the contract irrespective of the value of goods
involved in the execution of the contract, and also different rates of tax
have been prescribed for different types of contracts; that the percentage B
of the value of the contract fixed in Column 3 of the table under Sub-cl.(v)
of cl.(n) of Sub-rule 4 of Rule 6 was arbitrary and further it varied with
the nature of the contract; and that S.19- A of the Act providing for
deduction of tax at source, was invalid.
Dismissing the appeal, this Court,
HELD: 1. A perusal of clause(t) of S.2 of the Karnataka Sales Tax
· Act, 1957 shows that in the main part the expression 'sale' has been defined
c
and in the inclusive part of the said definition, sub-cls.(i) to (iv) reproduce
sub-clauses (a) to (d) of Clause (29-A) of Article 366 of the Constitution D
of India. Explanation 3 contains three clauses, whereby the situs of the sale
is fixed. Clause (a) of Explanation 3 contains the words "other than the
sale in the course of inter-State trade or commerce or in the course of
import or export" which mean that a sale or purchase of goods in the
course of inter-State trade or commerce or in the course of import or E
export is excluded. Moreover Clause (a) of Explanation 3 merely
reproduces the provisions contained in the main part of sub-Section (2)
of Section 4 of the Central Sales Tax Act. Clause {b) of Explanation 3
contains the Explanation in sub-s.(2) of Section 4 of the Central Sales Tax
Act. Clause (c) of Explanation 3 relates to works contracts and fixes the
situs of the deemed sales resulting from transfer of property in goods
involved in execution of a works contract. It starts with a non-obstante
clause which refers to the Sale of Gof!ds Act, 1930. This means that clause
(c) has to be read with other provisions of the Act including clauses (a)
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and (b) of Explanation 3, which expressly exclude a sale in the course of
inter-State trade or commerce and a sale in the course of import or export. G
Construing clause (c) in the light of clauses (a) and (b) of Explanation 3,
it cannot be said that in fixing the situs in respect of deemed sales resulting
from transfer of property in goods involved in execution of a works
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