Builders’ Association of India vs. State of Karnataka & Ors

Cituation: (1989) 2 SCC 645
Court: Supreme Court of India
Bench: M.H. Kania (Cj), J.S. Verma, S.C. Agrawal, Y. Dayal, A.S. Anand
Date of Judgment: Nov 17, 1992

Comment:

Introduction

This is a case between the Builders Association of India with Karnataka for making the Karnataka Sales Tax Act (hereinafter Act) which impugned in nature for being discriminatory in many ways. In order to find the constitutionality of the said Act, they filed a writ petition before Honourable Court followed by an appeal which was dismissed. In this case Article 366 29A (B) read with Article 286 were discussed along with the impugned Act and Central Sales Tax Act. This majorly deals with levy of tax power of the state and central in matter of “work contract”.

Facts

The appellant is an association of contractor engaged in the work of construction. The provisions of the Karnataka Sales Tax Act which have been impugned by the appellant in writ petition were introduced in the said enactment after the Constitution (Forty-sixth Amendment) Act, 1983 whereby clause (29-A) was introduced in Article 366 of the Constitution so as to enable State Legislatures to impose tax on transfer of property in goods (whether as goods or in some other form) involved in the execution of a works contract. The validity of Forty-sixth Amendment came up for consideration before this Court [1]

Issues involved

Whether state has legislative competency on enacted Act valid?

Summary of Court decision and Judgement

The said contention of the appellant has been rejected by the High Court. The said amendment was upheld as valid and it was declared that sales tax laws passed by the legislatures of States levying taxes on the transfer of property in goods (whether as goods or in some other form) involved in the execution of a works contract are subject to the restrictions and conditions mentioned in each clause or sub-clause of Article 286 of the Constitution. This Court further declared that whatever might be the situational differences of individual cases, the constitutional limits on the taxing power of the State as are applicable to ‘works contracts’ represented by “building-contracts” in the context of the expanded concept of “tax on the sale or purchase of goods” as constitutionally defined under Article 366(29-A), would equally apply to other species of ‘works contracts’ with the requisite situational modifications.[2]

Analysis

Twyford Tea Co. Ltd. v. Kerala State  has laid down that the legislature has a” wide range of selection and freedom in appraisal not only in the objects of taxation and the manner of taxation but also in the determination of the rate or rates applicable”. Fixing the rate of tax, it is permissible to fix a uniform rate of tax for the various goods involved in the execution of a works contract which rate may be different from the rates of tax fixed in respect of sales or purchase of these goods as a separate Article. [3] Tax was imposed on cooked food sold in luxury hotels while there was exemption from tax on cooked food sold in modest eating places.[4] Classification based on the use of the goods for the purpose of imposition of the tax was upheld in these cases.

Conclusion

Certain deductions which come under work contract makes tax only to those goods with different tax rate fixed by the schedule. Mostly the duty of the State is to follow the guiltiness along with elaborated procedure according to the needs. So this power given to state sometimes can override its power too that can be foreseen only by the court of law which they held correct law.

[1] Builders’ Association of India v. Union of India[ 1989 (2) SCC 645 : 1989 SCC(Tax) 317 : 1989 (2) SCR 320]

[2] East India Tobacco Co. v. State of A.P.,

[3] Ganga sugar Co. Ltd. v. State of U.P.,

[4] Kerala Hotel & Restaurant Association v. State of Kerala

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