Case Note & Summary
The Supreme Court allowed the appeal filed by the State of Orissa against the judgment of the Orissa High Court. The dispute arose from works contracts awarded to M/s B. Engineers & Builders Ltd. by various offices of the Government of Orissa. The contracts contained Clause 45.2 of the General Conditions of Contract (GCC) which provided for reimbursement of Central or State sales tax and other taxes on completed items of work, levied and paid by the contractor, upon proof of payment. The Orissa Sales Tax Act, 1947, as amended after the Constitution (Forty-sixth Amendment) Act, 1982, imposed sales tax on the transfer of property in goods involved in the execution of works contracts at a rate initially 4% and later increased to 8%. The contractor claimed reimbursement of sales tax paid for assessment years 1998-1999 to 2000-2001. However, the State Government issued a Circular dated 07.11.2001 clarifying that completed items of work are not exigible to sales tax and therefore reimbursement under Clause 45.2 does not arise, and directed recovery of amounts already reimbursed. The contractor challenged this circular in the High Court, which quashed the circular and directed reimbursement. The Supreme Court examined the nature of sales tax on works contracts and held that the tax is levied on the value of goods transferred in execution of works contract, not on the completed item of work. Clause 45.2 applies only when tax is levied on the completed item of work as such. Since the tax in question was on the deemed sale of goods, the circular was clarificatory and not contrary to law. The High Court erred in quashing the circular and directing reimbursement. The Supreme Court set aside the High Court's order and dismissed the writ petition.
Headnote
A) Constitutional Law - Sales Tax on Works Contracts - Article 366(29-A) of the Constitution of India - The Forty-sixth Amendment created a fiction treating works contracts as deemed sale, but tax is leviable only on the value of goods transferred in execution of works contract, not on the entire contract value. (Paras 2-3) B) Contract Law - Interpretation of Reimbursement Clause - Clause 45.2 of General Conditions of Contract - Reimbursement of sales tax on completed items of work - The clause applies only when sales tax is levied on the completed item of work as such; it does not apply when tax is levied on the transfer of property in goods involved in works contract under the Orissa Sales Tax Act, 1947. (Paras 3-5) C) Sales Tax - Orissa Sales Tax Act, 1947 - Sections 2(g), 2(gg), 5(2)(AA) - Works contract - Tax is levied on taxable turnover of goods transferred in execution of works contract, not on completed items of work. The High Court erred in holding that the clarification circular was contrary to the Act and Clause 45.2. (Paras 3-5) D) Administrative Law - Government Circular - Clarificatory Circular dated 07.11.2001 - The circular correctly stated that completed items of work are not exigible to sales tax and that reimbursement under Clause 45.2 does not arise; it is not contrary to law and does not take away vested rights. (Paras 3-5)
Issue of Consideration
Whether the High Court was correct in quashing the clarification Circular dated 07.11.2001 and directing reimbursement of sales tax under Clause 45.2 of GCC, when the sales tax was levied on the transfer of property in goods involved in works contracts under the Orissa Sales Tax Act, 1947.
Final Decision
The Supreme Court allowed the appeal, set aside the impugned judgment and order dated 05.08.2008 of the Orissa High Court, and dismissed the writ petition filed by the respondent.
Law Points
- Sales tax on works contracts is levied on the value of goods transferred in execution of works contract
- not on completed items of work
- Clause 45.2 of GCC for reimbursement of sales tax on completed items of work does not apply when tax is on deemed sale of goods
- Circular dated 07.11.2001 is clarificatory and not contrary to law
- High Court erred in quashing circular and directing reimbursement.
