STEEL AUTHORITY OF INDIA versus STATE OF ORISSA

Citation: [2000] 1 S.C.R. 1192 · Decided: 25-02-2000 · Supreme Court of India · Bench: S.P. BHARUCHA · Disposal: Appeal(s) allowed

Judgment (excerpt)

A 
STEEL AUTHORITY OF INDIA 
v. 
STATE OF ORISSA 
FEBRUARY 25, 2000 
B 
[S.P. BHARUCHA, S.N. PHUKAN AND MRS. RUMA PAL, JJ.] 
SALES TAX: 
Orissa Sales Tax Act 1947-Section 13-AA-Provisions amended after 
C 
High Court stmck down previous Section 13-AA-4% deduction at source 
towards sales tax-On Payments made to contractors carrying out works 
contracts involving trans/ er of property and goods-Appellant made no deduc-
tion in respect of illter-State sales, outside sales and import sales-Show cause 
notices issued and penalty imposed-On challenge High Court held, S.13-AA 
not ultra vires the Constitution-On appeal Held, sales tax may not be payable 
D for trans/ er of property in the course of inter-State sales, outside sales and 
import sales even if works contract involves both trans[ er of property in goods 
and labour or service-Section 13- AA stmck down being ultra vires and 
beyond the power of the State Legislature to make law levying sale tax on 
inter-State sales, outside sales and import sales-Orissa Sales Tax Rules, 
E 
1947-Fonn XI-C-Central Sales Tax Act, 1956-Section 3, 4 and 5-Con-
stitution of India-Articles 246, 286( 1) and (2), 366 (29-A)(b) and Schedule 
VII, List II, Entry 54. 
Constitution of India-Article 226-Locus Standi--4% deduction 
towards sales tax by owner from amount payment to contractor-Held, owner 
F 
has standing to challenge constitutionality of provision as it is aggrieved and 
damnified by the penalty imposed--Orissa Sales Tax Act-Section 13-
AA( 1)(5). 
Section 13-AA of the Orissa Sales Tax Act was struck down by the 
G High Court as it did not provide any mechanism to exclude a transaction 
from its purview which ultimately would not be taxable. The Section was 
substituted and it required deduction at source, towards Sales tax, of 4% 
of the amount paid to contractors carrying out works contracts involving 
transfer of property and goods. The appellant had entered into a works 
contract for the design; engineering, manufacture, supply, construction 
H and commissioning of an oxygen furnace plant. Sales tax was deducted at 
1192 
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S.A.l.L. v. STATE 
1193 
source for payments regarding design and construction but no deduction A 
was made in respect of inter-State sales, outside sales and import sales. 
Commercial Tax Officer issued show cause notices to initiate penalty 
proceedings. Appellant filed a writ petition before the High Court chal-
lenging the notices and the vires of Section 13-AA of the Orissa Sales Tax 
Act. Penalties were imposed dm;ing pendency of the writ petition as B 
Revenue was permitted to proceed with the hearing on the show cause 
notices. Appellant filed another writ petition challenging the imposition of 
penalty. High Court while deciding both the writ petitions held, Section 
13-AA of the Act not ultra vires the Constitution and ordered deposit of 
50% of the.demand. Hence this appeal. 
C 
The respondent Revenue contended before this Court that since the 
moneys deducted belonged to the contractor, only the contractor could 
challenge validity of Section 13-AA; that the Preamble of the Act showed 
that the statute was limited to sale on purchase of goods in Orissa, and 
that the provision was for deduction of 4%, while sales tax liability of the D 
contractor was 8%, showed an assumption that half of the amount was not 
liable to be taxed being in respect of inter-State sales, outside sales and 
import sales. 
Allowing the appeal, the Court 
HELD : 1.1. Section 13-AA of the Orissa Sales tax Act, as amended, is 
struck down as being beyond the putvlew of Orissa State Legislature. 
Neither Section 13-AA(S) (a) of the Orissa Sales Tax Act takes into account 
E 
the fact that even if a works contract involves both transfer of property in 
goods and labour or service, State sales tax may not be payable upon the F 
entire vaiue ascribable to the transfer of property in goods for the reason 
that it is the course of inter-State, outside sales or sales in the course of 
export, nor is such account taken elsewhere in Section 13-AA. 
[1204-A; 1202-C-D] 
1.2. The form of the certificate referred to in Section 13-AA(S), which G 
is found in Form XI-C of the Orissa Sale Tax Rules makes it clear that all 
that the Commissioner is required to look at is whether any labour or 
service is involved in the work contract. [1202-D-E] 
Gannon Dunkerley and Co. & Ors. v. State of Rajasthan & Ors., [1993] 
1 SCC 364 and Bhawani Cotton Mills Ltd. v. State of Punjab & Anr., [

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