Boppanna Arjuna Rao vs Executive Officer, Tirumala Tirupathi Devasthanam and Others

P. Venkatarama Reddi, J.—The petitioner questions the action of the respondents Nos. 1 and 2 in effecting recovery towards sales tax at 4 per cent from the bills payable to the petitioner in connection with the works contract entrusted to him through agreement No. 15/SE. III/1997-98. The petitioner submits that such deduction u/s 5-H of the Andhra Pradesh General Sales Tax Act, 1957 is contrary to G.O. Ms. No. 314, Revenue (CT.II.) Department, dated April 28, 1988 and the circular issued by the Chief Engineer, Tirumala Tirupathi Devasthanam (T.T.D.), in Roc No. 125/D1/CE/95 dated October 28, 1995. The petitioner also seeks a. direction to refund the tax already recovered from the bills.

It is unfortunate that none appears for respondents Nos. 1 and 2 though the case was adjourned on a number of occasions earlier.

The circular issued by the Chief Engineer, T.T.D., is based on G.O. Ms. No. 314, Revenue (CT.II.) Department, dated April 28, 1988. The notification issued under the G.O. reads as follows :

"APPENDIX

Notification

In exercise of the powers conferred by Sub-section (1) of Section 9 of the Andhra Pradesh General Sales Tax Act, 1957 (Andhra Pradesh Act No. VI of 1957), the Governor of Andhra Pradesh hereby exempts with effect from April 1, 1976 from the tax payable under the said Act on the sales and purchases of goods by the Tirumala Tirupathi Devasthanams."

A perusal of the Government order makes it clear that the works contractor who transfers or utilises the material in the course of execution of contract is not entitled to claim exemption, The transfer of such material is deemed to be sale after the Andhra Pradesh General Sales Tax Act was amended by A.P. Act 18 of 1985 pursuant to the forty-sixth Constitutional amendment. Section 5H of the Act provides for deduction of tax at source in respect of works contract executed for the benefit of Central and State Governments and undertakings of the said Governments, local authorities or statutory bodies. The tax deducted at the rate specified in Sub-section (1) of Section 5H of the Act shall be remitted to the Government by the said authority or institution. In the circular issued by the Chief Engineer, T.T.D., it is presumed that there is no legal liability to recover the tax from the works contractors inasmuch as the purchases by T.T.D. are exempt from tax. Obviously, this circular proceeds on a wrong assumption. It is not as if the purchases by T.T.D. are liable to be taxed under the Act in the case of works contract unless the goods in question are taxable at purchase point. The goods taxable at sale point are liable to be taxed in the hands of the contractor and that is why the deduction is required to be made. As far as the sale by the contractor in favour of T.T.D. is concerned, there is no exemption, going by the plain terms of the Government order. The exemption in respect of the purchases by T.T.D. does not necessarily imply that the sales by the contractor in favour of the T.T.D. should also be exempt. Unless the exemption notification is clear, the benefit cannot be claimed by the tax-payer. If the intention of the Government was to exempt the sales in favour of T.T.D. even in respect of goods liable to be taxed at sale point, the State Government has to issue a notification making that position clear. On the basis of the existing Government order, we are unable to say that any exemption is provided for in regard to the deemed sales of materials involved in execution of works contract by the contractor in favour of T.T.D. Thus, we cannot give effect to the circular issued by the Chief Engineer, T.T.D., which is based on a wrong assumption of the legal position as to the scope of the exemption notification. It is axiomatic that the circular itself which is in the nature of executive instructions cannot go beyond the scope of the provisions of the Act. The T.T.D. is legally liable, as the provisions now stand, to deduct the tax at source u/s 5H of the Act and remit the same to the State Government. However, we would like to make it clear that in respect of cement, steel, etc., which may be supplied by T.T.D. itself for execution of the works contract, no tax is liable to be deducted at source because there is no sale involved and even if there is sale, such sale by T.T.D. is exempt from tax. That apart, we would like to clarify that the labour component of works contract cannot be subjected to tax. Such component can be dissected as per the provisions contained in Rule 6 of the Andhra Pradesh General Sales Tax Rules, 1957 governing the deduction of value of labour charges.

The above principles shall be kept in view while deducting tax at source from the petitioner from out of the bills payable to him in respect of the works contract entrusted to him.

It is made clear that the interim stay earlier granted is vacated.

The writ petition is disposed of with the above clarifications and directions.