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Amendment to Additional Sales Tax Act unconstitutional: High Court
October, 04th 2016

The Madras High Court Bench here has declared unconstitutional the inclusion of Explanation V to Section 2(1)(aa) of the Tamil Nadu Additional Sales Tax Act, 1970, in 2002 to levy additional tax even on works contractors who had opted to pay general sales tax not on the basis of their taxable turnover but on the total value of the works contracts.

Dismissing a writ appeal preferred by the Commercial Taxes Secretary, a Division Bench of Justices M. Sathyanarayanan and V.M. Velumani held that it did not find any infirmity in an order passed by a single judge of the High Court on September 27, 2011 declaring that the inclusion of the explanation was beyond the legislative competence of the State legislature.

The judges said the Tamil Nadu General Sales Tax Act, 1959 gave works contractors the option of paying tax on the basis of their taxable turnover under Section 3B or to pay a specified percentage of the value of the works contract undertaken by them under Section 7C.

In 2001, the High Court held that the State government could levy additional sales tax under the 1970 Act only on those who had paid general sales tax on the basis of their taxable turnover and not on those who had paid tax under Section 7C. In order to overcome the judgement, the government introduced Explanation V to Section 2(1)(aa) of the Act with retrospective effect from 1993.

Allowing a writ petition filed by a works contractor in 2007 challenging the Constitutional validity of the 2002 amendment to the legislation, Justice Vinod Kumar Sharma had held that “an Explanation cannot in any way interfere with or change the enactment or any part thereof... It also cannot take away a statutory right with which any person under a statute has been clothed.”

Concurring with the view taken by the single judge, the Division Bench led by Mr. Justice Sathyanarayanan said: “This court... is of the considered opinion that there is no error apparent or infirmity in the reasons assigned in the single judge’s order and finds no merit in the writ appeal.”

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