Page 72 - GSTL_16th July 2020_Vol. 38_Part 3

310 GST LAW TIMES [ Vol. 38
tablished the five following propositions : (i) as a result of Forty-sixth
Amendment the contract which was single and indivisible has been
altered by a legal fiction into a contract which is divisible into one for
sale of goods and the other for supply of labour and service and as a
result of such contract which was single and indivisible has been
brought on par with a contract containing two separate agreements;
(ii) if the legal fiction introduced by Article 366(29A)(b) is carried to
its logical end, it follows that even in a single and indivisible works
contract there is a deemed sale of the goods which are involved in the
execution of a works contract. Such a deemed sale has all the inci-
dents of the sale of goods involved in the execution of a works con-
tract where the contract is divisible into one for sale of goods and the
other for supply of labour and services; (iii) in view of sub-clause (b)
of Clause (29A) of Article 366, the State legislatures are competent to
impose tax on the transfer of property in goods involved in the execu-
tion of works contract. Under Article 286(3)(b), Parliament has been
empowered to make a law specifying restrictions and conditions in
regard to the system of levy, rates or incidents of such tax. This does
not mean that the legislative power of the State cannot be exercised
till the enactment of the law under Article 286(3)(b) by the Parlia-
ment. It only means that in the event of law having been made by
Parliament under Article 286(3)(b), the exercise of the legislative
power of the State under Entry 54 in List II to impose tax of the nature
referred to in sub-clauses (b), (c) and (d) of Clause (29A) of Article 366
would be subject to restrictions and conditions in regard to the sys-
tem of levy, rates and other incidents of tax contained in the said law;
(iv) while enacting law imposing a tax on sale or purchase of goods
under Entry 54 of the State List read with Article 366(29A)(b), it is
permissible for the State legislature to make a law imposing tax on
such a deemed sale which constitutes a sale in the course of the inter-
State trade or commerce under Section 3 of the Central Sales Tax Act
or outside under Section 4 of the Central Sales Tax Act or sale in the
course of import or export under Section 5 of the Central Sales Tax
Act; and (v) measure for the levy of tax contemplated by Article
366(29A)(b) is the value of the goods involved in the execution of a
works contract. Though the tax is imposed on the transfer of property
in goods involved in the execution of a works contract, the measure
for levy of such imposition is the value of the goods involved in the
execution of a works contract. Since, the taxable event is the transfer
of property in goods involved in the execution of a works contract
and the said transfer of property in such goods takes place when the
goods are incorporated in the works, the value of the goods which
can constitute the measure for the levy of the tax has to be the value
of the goods at the time of incorporation of the goods in works and
not the cost of acquisition of the goods by the contractor.
69. In Gannon Dunkerley-II, sub-section (3) of Section 5 of the Raja-
sthan Sales Tax Act and Rule 29(2)(1) of the Rajasthan Sales Tax Rules
were declared as unconstitutional and void. It was so declared be-
cause the Court found that Section 5(3) transgressed the limits of the
legislative power conferred on the State legislature under Entry 54 of
the State List. However, insofar as legal position after Forty-sixth
Amendment is concerned, Gannon Dunkerley-II holds unambiguously
that the States have now legislative power to impose tax on transfer
of property in goods as goods or in some other form in the execution
of works contract.

GST LAW TIMES  16th July 2020  72