JUDGMENT Sushil Harkauli, J.
1. The petitioner is a company. Apparently, an ex parte assessment order in respect of the year 2002-03 was passed which was set aside under Section 30 of U.P. Trade Tax Act, 1948 on an application of the petitioner and by the impugned order dated 1.12.2005 (Annexure '3' to the writ petition) assessment has been made. Pursuant to the assessment, recovery has been issued.
2. The impugned order is appealable under Section 9 of the U.P. Trade Tax Act, 1948 (hereafter referred to as the 'U.P. Act' for brevity) in respect of the part of the order covered by the U.P. Act, and appealable under Section 20 of the Central Sales Tax Act, 1956 (hereafter called the "Central Act' for short) in respect of the part of the order covering inter-State trade.
3. Normally, the petition would have been dismissed on the ground of availability of the alternative statutory remedy under the taxing statutes. However, we have heard the matter because learned Counsel for the petitioner submitted that a pure question of law was involved, which went to the root of the matter. The arguments were confined to that question of law.
4. The question which has been raised by learned Counsel for the petitioner is that in a works contract, which involves transfer of property in goods, the said transfer has been included within the definition of sale by amendment of the Constitution of India as well as the Central Act and the U.P. Act.
5. It has been contended that, for imposing the tax liability, it is necessary to determine the "sale price", as defined in Section 2(h) of the Central Act. It may be clarified at this point that the dispute only involves that part of the assessment order, which is covered by the Central Act.
6. The assessment year involved is 2002-03. Therefore, the definition of sale price will have to be examined as it existed prior to the amendment inserted by the Finance Act, 2005, which added the following proviso:
PROVIDED that in the case of a transfer of property in goods (whether as the sale price of such goods shall be determined in the prescribed manner by making such deduction from the total consideration for the works contract as may he prescribed and such price shall be deemed to be the sale price for the purposes of this clause.
7. According to the arguments raised, the Assessing Authority does not have the power or authority to find out as to how much of the contract amount relates to the transfer of goods in execution of the works contract. More specifically, the argument is that unless the statute or the statutory rules provide the manner in which the sale price is to be arrived at, the Assessing Authority cannot investigate or determine the sale price. Learned Counsel has referred to some authorities on the interpretation of statutes, particularly on interpretation of a proviso. We are unable to accept the petitioner's interpretation because it would render the tax charging section of the statute redundant. Interpretation must advance the legislative purpose. While it is true that taxation must depend upon the express charging provisions of the statute, and no tax can be levied by inferences; but it is equally true that an interpretation leading to redundancy of statutory provisions must be avoided.
8. After the amendment of 2005, which added the proviso, the determination of sale price has to be done in the 'prescribed manner' by making the prescribed deductions from the total consideration of the works contract and the "price" arrived at by such process is to be "deemed" to be the '"sale price" for the purpose of the said Clause (h) of Section 2 of the Central Act. However, before the said proviso was inserted, there was no such restriction or fictional value attached to the "sale price".
9. In the circumstances, normally, it would be for the Assessing Authority, upon the material furnished by the assessee as also such other material which may be relevant, to determine the 'sale price' of the goods, which were transferred under the work contract.
10. In the case of Gannon Dunkerley and Co. v. State of Rajasthan and Ors. the Supreme Court laid down as follows in paragraphs 46 to 49 of the said law report:
46. With regard to the determination of the value of the goods which are involved in the execution of a works contract the submission of the learned Counsel appearing for the States is that a more convenient mode for such determination is to take the value of the works contract as a whole and deduct therefrom the cost of labour and services rendered by the contractor during the course of execution of the works contract. The submission of the learned Counsel is that this mode would prevent evasion of tax. The submission of the learned Counsel is that this mode would prevent evasion of tax. The learned Counsel for the contractors have submitted that in that event the following deductions should be made from the value of the entire contract in order to arrive at the value of the goods involved in the execution of a works contract:
(i) labour charges for execution of the works;
(ii) amounts paid to a sub-contractor for labour and services;
(iii) charges for planning, designing and architect's fees
(iv) charges for obtaining on hire the machinery and tools used in the execution of the works contract;
(v) cost of consumables such as water, electricity, fuel, etc.
(vi) transportation charges for transport of goods to the place of works;
(vii) overhead expenses of the head office and branch office including rents, salary, electricity, telephone charges, etc. and interest charges to banks and financial institutions;
(viii) profits expected on such contract.
47. Keeping in view the legal fiction introduced by the Forty-sixth Amendment whereby the works contract which was entire and indivisible has been altered into a contract which is divisible into one for sale of goods and other for supply of labour and services, the value of the goods involved in the execution of a works contract on which tax is leviable must exclude the charges which appertain to the contract for supply of labour and services. This would mean that labour charges for execution of works, I item No. (iii)], charges for obtaining on hire or othervise machinery and tools used in the execution of a works contract I item No. (iv) J, and the cost of consumables such as water, electricity, fuel, etc. which are consumed in the process of execution of a works contract [item No. (v)] and other similar expenses for labour and services will have to be excluded as charges for supply of labour and services. The charges mentioned, in item No. (vi) cannot, however, be excluded. The position of a contractor in relation to a transfer of property in goods in the execution of a works contract is not different from that of a dealer in goods who is liable to pay sales tax on the sale price charges by him from the customer for the goods sold. The said price includes the cost of bringing the goods to the place of sale. Similarly, for the purpose of ascertaining the value of goods which are involved in the execution of a works contract for the purpose of imposition of tax, the cost of transportation of the goods to the place of works has to be taken as part of the value of the said goods. The charges mentioned in item No. (vii) relate to the various expenses which form part of the cost of establishment of the contractor. Ordinarily the cost of establishment is included in the sale price charged by a dealer from the customer for the goods sold. Since, a composite works contract involves supply of materials as well as supply of labour and services, the cost of establishment of the contractor would have to be apportioned between the part of the contract involving supply of materials and the part involving supply of labour and services. The cost of establishment of the contractor which is relatable to supply of labour and services cannot be included in the value of the goods involved in the execution of a contract and the cost of establishment which is relatable to supply of material involved in the execution of the works contract only can be included in the value of the goods. Similar apportionment will have to be made in respect of item No. (viii) relating to profits. The profits which are relatable to the supply of materials can be included in the value of the goods and the profits which are relatable to supply of labour and services will have to be excluded. This means that in respect of charges mentioned in item Nos. (vii) and. (viii), the cost of establishment of the contractor as well as the profit earned by him to the extent the same are relatable to supply of labour and services will have to be excluded. The amount so deductible would have to be determined in the light of the facts of a particular case on the basis of the material produced by the contractor. The value of the goods involved in the execution of a works contract will, therefore, have to be determined by taking into account the value of the entire works contract and deducting therefrom the charges towards labour and services which would cover-
(a) labour charges for execution of the works;
(b) amount paid to a sub-contractor for labour and services:
(c) charges for planning,, designing and architect's fees;
(d) charges for obtaining on hire or otherwise machinery and tools used for the execution of the works contract;
(e) cost of consumables such as water, electricity, fuel, etc. used in the execution of the works contract the property in which is not transferred in the course of execution of a works contract; and.
(f) cost of establishment of the contractor to the extent it is relatable to supply of labour and services;
(g) other similar expenses relatable to supply of labour and services;
(h) profit earned by the contractor to the extent it is relatable to supply of labour and services.
The amounts deductible under these heads will have to be determined in the light of the facts of a particular case on the basis of the material produced by the contractor.
48. We may, however, make it clear that apart from the deductions referred to above, it will be necessary to exclude from the value of the works contract the value of the goods which are not taxable in view of Sections 3, 4 and 5 of the Central Sales Tax Act and goods covered by Sections 14 and 15 of the Central Sales Tax Act as well as goods which are exempt from tax under the sale tax legislation of the State. The value of goods involved in the execution of a works contract 'will have to he determined after making these deductions and exclusions from the value of the works contract.
49. Normally, the contractor will be in a position to furnish the necessary material to establish the expenses that were incurred under the aforesaid heads of deduction for labour and services. But there may be cases where the contractor has not maintained proper accounts or the accounts maintained by him are not found to be worthy of credence by the assessing authority. In that event, a question would arise as to how the deduction towards the aforesaid heads may be made. On behalf of the States, it has been urged that it would be permissible for the State to prescribe a formula on the basis of a fixed percentage of the value of the contract as expenses towards labour and services and the same may be deducted from the value of the works contact and that the said formula need not be uniform for all works contracts and may depend on the nature of the works contract. We find merit in (his submission. In cases where the contractor does not maintain proper accounts of the accounts maintained by him are not found worthy of credence it would., in our view, be permissible for the State legislation to prescribe a formula for determining the charges for labour and services by fixing a particular percentage of the value of the works contract and to allow deduction of the amount thus determined from the value of the works contract for the purpose of determining the value of the goods involved in the execution of the works contract. It must, however, be ensured that the amount deductible under the formula that is prescribed for deduction towards charges for labour and services 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. Since the expenses for labour and services would depend on the nature of the works contract and would not be the same for all types of works contracts, n would be permissible, indeed necessary, to prescribe varying scales for deduction on the account of cost of labour and. services for various types of works contracts.
11. Learned Counsel for the petitioner relied upon paragraph 49 of the Supreme Court judgment, quoted above, and read it along with a decision of Division Bench of this Court in the case of V.K. Singhal v. State of U.P. (1995 UPTC 337), particularly paragraph 32 of the said Division Bench decision.
12. After examining both the decisions above, we are of the opinion that the decision of the Supreme Court does not support the petitioner but goes against the petitioner. In paragraphs 46 to 48, the Supreme Court has laid down the principles for determining the "sale price".
13. Thereafter, in paragraph 49, the Supreme Court merely holds that it is permissible for the Legislation to prescribe a formula for determining the permissible deductions for the purpose of computing the 'sale price'.
14. The Supreme Court decision, aforesaid, does not, in any manner, curtail the right of the Assessing Authority to determine the sale price in absence of a formula prescribed by the Legislature.
15. In the Division Bench decision of this Court, in the case of V.K. Singha, J. (supra) the Court was testing the validity of Rule 44-B of the U.P. Sales Tax Rules, 1948 and held the same to be ultra vires apparently on the ground that it permitted only some of the deductions mentioned by the Supreme Court in the case of Gannon Dunkerley and Company (supra) and not the other deductions. Our reading of the Division Bench decision is, in brief, that where the rule prescribes a formula and only permits some deductions, the Assessing Authority would not be permitted to allow the other deductions resulting in inclusion within the 'sale price' value of items which are not amongst the goods transferred under the contract and, therefore, it would amount to levy of Trade Tax or Sales Tax on other items, such as labour charges, charges for planning, designing and architect's fees, etc. Further, the permissible deduction under Rule 44-B did not provide for deduction of the value of goods covered by Sections 3, 4 and 5 of the Central Act and did not take into account the sale of goods covered by Sections 14 and 15 of the Central Act. This can be found in paragraph 27 of the law report.
16. Thus, even the Division Bench decision does not amount to saying that unless the mode of computation is prescribed by the statute or statutory rules, the Assessing Authority is deprived of the authority of computing such value for determining the 'sale price'. We are not expressing any opinion about the situation after the amendment by the Finance Act, 2005 as mat question does not arise in this case. However, for the year involved, i.e. 2002-03, it was within the competence of the Assessing Authority to determine the sale price in accordance with the principles laid down by the Supreme Court in the case of Gannon Dunkerley and Company (supra).
17. Whether in computation of the sale price the Assessing Authority has or has not committed any error is a question, which can be conveniently adjudicated in the appellate proceedings and, therefore, we dismiss this writ petition without prejudice to the rights of the petitioner in getting the matter adjudicated in appeal.