Madras High Court
The State Of Tamil Nadu vs Tvl I. Vetrivel Civil Contractor on 9 July, 2026
Author: N.Anand Venkatesh
Bench: N.Anand Venkatesh
TCR(MD).Nos.23, 24, 25, 26, 27, 28 & 30 of 2024
BEFORE THE MADURAI BENCH OF MADRAS HIGH COURT
Reserved On : 21.04.2026
Pronounced on : 09.07.2026
CORAM
THE HONOURABLE MR.JUSTICE N.ANAND VENKATESH
AND
THE HONOURABLE MR.JUSTICE K.K.RAMAKRISHNAN
TCR(MD).Nos.23, 24, 25, 26, 27, 28 & 30 of 2024
TCR(MD).No.23 of 2024
The State of Tamil Nadu,
Represented by the Joint Commissioner (CT),
Madurai Division,
Madurai. ...Revision Petitioner
vs.
I.Vetrivel,
Civil Contractor,
No.7/2, Thiruvalluvar Nagar,
Usilampatti. ...Respondent
PRAYER: Revision Petition has been filed under Section 38 of TNGST
Act, to set aside the order passed by the Tamil Nadu Sales Tax Appellate
Tribunal (AB) Madurai in MTSA.No.492 of 2018 dated 15.03.2024 and to
restore the purchase tax levied by the assessing officer at the rate of tax 4%
under Section 7-A of the TNGST Act, 1959 and penalty levied by the
assessing officer under Section 16(2)(b) of TNGST Act, 1959.
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TCR(MD).Nos.23, 24, 25, 26, 27, 28 & 30 of 2024
For Appellant : Mr.R.Suresh Kumar
Additional Government Pleader
For Respondent : Mr.Rajakarthikeyan
TCR(MD).No.24 of 2024
The State of TamilNadu,
Represented by the
Joint Commissioner (CT),
Madurai Division,
Madurai. ...Revision Petitioner
vs.
I.Vetrivel,
Civil Contractor,
7/2, Thiruvalluvar Nagar,
Usilampatti. ...Respondent
PRAYER: Revision Petition has been filed under Section 38 of TNGST
Act, to set aside the order passed by the TamilNadu Sales Tax Appellate
Tribunal (AB) Madurai in MTSA.No.475 of 2018 dated 15.03.2024 and to
restore the purchase tax levied by the assessing officer at the rate of tax 4%
under Seciton 7-A of the TNGST Act, 1959 and penalty levid by the
assessing officer under Section 16(2)(b) of TNGST Act, 1959.
For Appellant :Mr.R.Suresh Kumar
Additional Government Pleader
For Respondent :Mr.Rajakarthikeyan
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TCR(MD).Nos.23, 24, 25, 26, 27, 28 & 30 of 2024
TCR(MD).No.25 of 2024
The State of TamilNadu,
Represented by the
Joint Commissioner (CT),
Madurai Division,
Madurai. ...Revision Petitioner
vs.
I.Vetrivel,
Civil Contractor,
7/2, Thiruvalluvar Nagar,
Usilampatti. ...Respondent
PRAYER: Revision Petition has been filed under Section 38 of TNGST
Act, to set aside the order passed by the TamilNadu Sales Tax Appellate
Tribunal (AB) Madurai in MTSA.No.361 of 2018 dated 15.03.2024 and to
restore the purchase tax levied by the assessing officer at the rate of tax 4%
under Seciton 7-A of the TNGST Act, 1959 and penalty levid by the
assessing officer under Section 16(2)(b) of TNGST Act, 1959.
For Appellant :Mr.R.Suresh Kumar
Additional Government Pleader
For Respondent :Mr.Rajakarthikeyan
TCR(MD).No.26 of 2024
The State of TamilNadu,
Represented by the
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TCR(MD).Nos.23, 24, 25, 26, 27, 28 & 30 of 2024
Joint Commissioner (CT),
Madurai Division,
Madurai. ...Revision Petitioner
vs.
I.Vetrivel,
Civil Contractor,
7/2, Thiruvalluvar Nagar,
Usilampatti. ...Respondent
PRAYER: Revision Petition has been filed under Section 38 of TNGST
Act, to set aside the order passed by the TamilNadu Sales Tax Appellate
Tribunal (AB) Madurai in MTSA.No.359 of 2018 dated 15.03.2024 and to
restore the purchase tax levied by the assessing officer at the rate of tax 4%
under Section 7-A of the TNGST Act, 1959 and penalty levied by the
assessing officer under Section 16(2)(b) of TNGST Act, 1959.
For Appellant :Mr.R.Suresh Kumar
Additional Government Pleader
For Respondent :Mr.Rajakarthikeyan
TCR(MD).No.27 of 2024
The State of TamilNadu,
Represented by the
Joint Commissioner (CT),
Madurai Division,
Madurai. ... Revision Petitioner
vs.
I.Vetrivel,
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TCR(MD).Nos.23, 24, 25, 26, 27, 28 & 30 of 2024
Civil Contractor,
7/2, Thiruvalluvar Nagar,
Usilampatti. ...Respondent
PRAYER: Revision Petition has been filed under Section 38 of TNGST
Act, to set aside the order passed by the TamilNadu Sales Tax Appellate
Tribunal (AB) Madurai in MTSA.No.358 of 2018 dated 15.03.2024 and to
restore the purchase tax levied by the assessing officer at the rate of tax 4%
under Section 7-A of the TNGST Act, 1959 and penalty levied by the
assessing officer under Section 16(2)(b) of TNGST Act, 1959.
For Appellant :Mr.R.Suresh Kumar
Additional Government Pleader
For Respondent :Mr.Rajakarthikeyan
TCR(MD).No.28 of 2024
The State of TamilNadu,
Represented by the
Joint Commissioner (CT),
Madurai Division,
Madurai. ... Revision Petitioner
vs.
I.Vetrivel,
Civil Contractor,
7/2, Thiruvalluvar Nagar,
Usilampatti. ...Respondent
PRAYER: Revision Petition has been filed under Section 38 of TNGST
Act, to set aside the order passed by the TamilNadu Sales Tax Appellate
Tribunal (AB) Madurai in MTSA.No.362 of 2018 dated 15.03.2024 and to
restore the purchase tax levied by the assessing officer at the rate of tax 4%
under Section 7-A of the TNGST Act, 1959 and penalty levied by the
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TCR(MD).Nos.23, 24, 25, 26, 27, 28 & 30 of 2024
assessing officer under Section 27(3)(c) of the TNVAT Act 2006.
For Appellant :Mr.R.Suresh Kumar
Additional Government Pleader
For Respondent :Mr.Rajakarthikeyan
TCR(MD).No.30 of 2024
The State of TamilNadu,
Represented by the
Joint Commissioner (CT),
Madurai Division,
Madurai. ... Revision Petitioner
vs.
I.Vetrivel,
Civil Contractor,
7/2, Thiruvalluvar Nagar,
Usilampatti. ...Respondent
PRAYER: Revision Petition has been filed under Section 38 of TNGST
Act, to set aside the order passed by the TamilNadu Sales Tax Appellate
Tribunal (AB) Madurai in MTSA.No.360 of 2018 dated 15.03.2024 and to
restore the purchase tax levied by the assessing officer at the rate of tax 4%
under Section 7-A of the TNGST Act, 1959 and penalty levied by the
assessing officer under Section 16(2)(b) of TNGST Act, 1959.
For Appellant :Mr.R.Suresh Kumar
Additional Government Pleader
For Respondent :Mr.Rajakarthikeyan
*****
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TCR(MD).Nos.23, 24, 25, 26, 27, 28 & 30 of 2024
COMMON JUDGMENT
These following seven revisions have been filed by the
Government against the common impugned order passed by the Tamil Nadu
Sales Tax Appellate Tribunal (AB) Madurai dated 15.03.2024 confirming
the various orders of the Appellate Deputy Commissioner exonerating the
assessee from making the payment of purchase tax levied under Section 7-A
of the TNGST Act, 1959 and penalty levied under Section 16(2)(b) of
TNGST Act, 1959 and the corresponding provision of Tamil Nadu Value
Added Tax Act, 2006.
Appellate
Sl. TCR Assessment
TNSTAT Madurai Deputy
No (MD).No order/year
Commissioner
1 23 of 2024 M.T.S.A.No.492 of 2018 A.P.No.6 of 2015 2003-2004
TNGST
2 24 of 2024 M.T.S.A.No.475 of 2018 A.P.No.1 of 2016 2005-2006
(TNGST)
3 30 of 2024 M.T.S.A.No.360 of 2018 A.P.No.94 of 2015 2012-2013
TNVAT Act 2006
4 28 of 2024 M.T.S.A.No.362 of 2018 A.P.No.91 of 2015 2009-2010
TNVAT Act 2006
5 27 of 2024 M.T.S.A.No.358 of 2018 A.P.No.90 of 2015 2008-2009
TNVAT Act
6 26 of 2024 M.T.S.A.No.359 of 2018 A.P.No.93 of 2015 2011-2012
TNVAT Act
7 25 of 2024 M.T.S.A.No.361 of 2018 A.P.No.92 of 2015 2012-2013
TNVAT Act
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TCR(MD).Nos.23, 24, 25, 26, 27, 28 & 30 of 2024
2. The respondent/assessee are civil contractors and registered
dealers under the Tamil Nadu General Sales Tax Act, 1959 herein after
called as “TNGST Act 1959”and Tamil Nadu Value Added Tax Act, 2006
hereinafter called as “TNVAT Act 2006”. They purchased sand, gravel and
jelly from unregistered dealers, and such goods were utilised in the
execution of works contracts. Hence, the Department invoked “Section 7-A
of the TNGST Act, 1959” and “Section 12 of the TNVAT Act 2006” for levy
of purchase tax and penalty under Section 16(2)(b) of the TNGST Act, 1959
and Section 27(3)(c) of the TNVAT Act, 2006 and issued demand notices
claiming the respective amounts.
3. The assessee filed the appeals before the Appellate Deputy
Commissioner (CT), Madurai (South) and contended that they are not liable
to pay purchase tax on sand, gravel and jelly, as the same would not fall
within the purview of Section 7-A of the Act. According to them, the
transactions do not come under any of the limbs of Section 7-A, and in
particular, the word “otherwise” occurring therein would qualify only “sale”
and not “consumption”. In support of their contention, reliance was placed
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TCR(MD).Nos.23, 24, 25, 26, 27, 28 & 30 of 2024
on a Division Bench judgment of this Court reported in 61 STC 337 (1986)
and the Appellate Deputy Commissioner (CT), Madurai (South) vide order
dated 30.08.2017 had ordered as “partly dismissed” and “partly allowed”.
The Appellate Deputy Commissioner (CT), Madurai (South) accepted the
case of the assessee that the assessee is not liable to pay purchase tax either
under Section 7-A of the TNGST Act, 1959 and Section 12 of the TNVAT
Act 2006. Challenging the same, Government filed the various appeals
before the Tamil Nadu Sales Tax Appellate Tribunal (AB) Madurai in
various numbers as stated above. The Tamil Nadu Sales Tax Appellate
Tribunal (AB) Madurai also confirmed the order of the Appellate Deputy
Commissioner (CT), Madurai (South) vide impugned common orders.
Challenging the same, the present tax revision cases have been filed by the
Government.
4. At the time of admission, this Court framed the following
substantial question of law in TCR(MD).Nos. 23 and 24 of 2024:
a. Whether the Tribunal failed to consider the fact
that the respondent had purchased the sand, gravel and jelly
from an unregistered dealer and the goods did not suffer taxPage 9 of 40
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TCR(MD).Nos.23, 24, 25, 26, 27, 28 & 30 of 2024at the earlier stage and therefore, it will attract the purchase
tax under Section 7-A(1)(a) of the TNGST Act?
b. Whether the Tribunal failed to take note of the
judgment of this Court in Rajapalayam Cotton Pressing
Factory vs. The State of Tamilnadu reported in 2000 118 STC
24 wherein this Court held that where the goods have been
purchased from an unregistered dealer and did not suffer tax
at the earlier stage, it will attract the purchase tax under
Section 7-A(1)(d) of the TNGST Act?
5. At the time of admission, this Court framed the following
substantial question of law in TCR(MD).Nos. 25, 26, 27, 28 and 30 of 2024:
a. Whether the Tribunal failed to consider the fact
that the respondent had purchased the sand, gravel and jelly
from an unregistered dealer and the goods did not suffer tax
at the earlier stage and therefore, it will attract the purchase
tax under Section Section 12 of the TNVAT Act 2006?
b. Whether the Tribunal failed to take note of the
judgment of this Court in Rajapalayam Cotton Pressing
Factory vs. The State of Tamilnadu reported in 2000 118 STC
24 wherein this Court held that where the goods have been
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TCR(MD).Nos.23, 24, 25, 26, 27, 28 & 30 of 2024at the earlier stage, it will attract the purchase tax under
Section 12 of the TNVAT Act 2006?
6.Submission on the side of the Revenue:
6.1. The learned Government Advocate appearing for the Revenue
submitted that the issue is no longer res integra, in view of the Constitution
Bench judgment of the Hon’ble Supreme Court, wherein it was held that a
works contractor purchasing materials such as sand, bricks and granite from
unregistered dealers for execution of works contracts then he is liable for
purchase tax. It was further submitted that Section 6-A of the Andhra
Pradesh General Sales Tax Act is pari materia with Section 7-A of the Tamil
Nadu General Sales Tax Act, 1959, and therefore, the interpretation
rendered by the Hon’ble Supreme Court squarely applies to the present case.
It was contended that the authorities below failed to properly consider the
said binding precedent.
7. Submission on the side of the Assessee:
7.1. The learned counsel for the assessee would primarily contend
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TCR(MD).Nos.23, 24, 25, 26, 27, 28 & 30 of 2024that, prior to the 46th Constitutional Amendment, there was no liability to
tax in respect of works contracts, since such contracts were treated as
indivisible contracts and no sales tax could be levied on the transfer of
property involved therein. Consequently, works contractors were not liable
to pay tax on the deemed sale value involved in the execution of works
contracts, even though materials such as bricks, blue metal and other
construction materials were purchased either from registered dealers or
unregistered dealers for the purpose of construction activities.
7.2. According to the learned counsel, after the 46th
Constitutional Amendment, Article 366(29-A) of the Constitution of India
was introduced, whereby the concept of “deemed sale” came to be
constitutionally recognised. Pursuant to the said constitutional amendment,
the State Legislature incorporated Section 3-B under the Tamil Nadu
General Sales Tax Act, providing for levy of tax on the transfer of property
in goods involved in the execution of works contracts by treating the same
as deemed sale.
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7.3. The learned counsel would therefore submit that once the
assessee had already suffered tax under Section 3-B on the taxable turnover
relating to the deemed sale value arising out of the works contract, there
could be no further levy of purchase tax under Section 7-A of the Act. In
substance, the contention of the assessee is that once Section 3-B is
attracted, Section 7-A stands excluded. According to him, “when Section 3-
B comes into operation, Section 7-A goes out of operation”.
7.4. Elaborating the said submission, the learned counsel further
contended that the judgment of the Honourable Supreme Court in Assistant
Commissioner v. Nandanam Construction Company pertained to the
assessment year 1977–1978, namely, a period anterior to the effective
implementation of the constitutional scheme relating to deemed sale under
Article 366(29-A). It is his submission that after the constitutional
recognition of deemed sale and the corresponding incorporation of Section
3-B under the Tamil Nadu General Sales Tax Act, the legal position stood
materially altered.
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TCR(MD).Nos.23, 24, 25, 26, 27, 28 & 30 of 2024
7.5. The learned counsel would further submit that once the works
contractor had discharged tax liability on the deemed sale turnover under
Section 3-B, the Revenue cannot once again invoke Section 7-A under the
guise of purchase tax in respect of the very same goods utilised in the
execution of the works contract. According to him, such a levy would
amount to double taxation, which is impermissible in law.
7.6. It is his further submission that once the goods had already
suffered tax at the earliest point and the deemed sale value had also been
subjected to tax under Section 3-B, there is no scope for imposing an
additional levy under Section 7-A. Therefore, the learned counsel seeks
interference with, and setting aside of, the concurrent orders passed by the
authorities below, by accepting the legal contention founded upon the
applicability of Section 3-B of the Act.
7.7. The learned counsel would further contend that both the
Appellate Authority as well as the Tribunal confined their discussion only
with reference to Section 7-A of the Act and failed to consider the
applicability of Section 3-B. Hence, according to the assessee, he is entitled
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TCR(MD).Nos.23, 24, 25, 26, 27, 28 & 30 of 2024
to canvass the additional ground relating to Section 3-B before this Court.
8. Submission by way of reply on behalf of the Revenue:
8.1. Per contra, the learned State Counsel appearing for the
Revenue would submit that Section 3-B has absolutely no application to the
present case. According to the Revenue, Section 3-B is intended only for
taxation relating to transfer of property in goods involved in the execution
of works contract by a registered dealer. On the other hand, Section 7-A was
specifically introduced with the object of plugging escaped assessments and
to levy purchase tax in circumstances where goods are purchased from
unregistered dealers and subsequently consumed or used “in or for the
manufacture of other goods for sale or otherwise”.
8.2. It is the further submission of the learned State Counsel that
Sections 3-B and 7-A operate in entirely different fields and are independent
provisions. Therefore, the attempt made by the assessee to invoke Section 3-
B so as to exclude the applicability of Section 7-A is wholly misconceived.
The learned State Counsel also placed reliance upon the Constitution Bench
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TCR(MD).Nos.23, 24, 25, 26, 27, 28 & 30 of 2024
judgment of the Honourable Supreme Court in Assistant Commissioner v.
Nandanam Construction Company, wherein the Supreme Court interpreted
the expression “or otherwise” occurring under Section 7-A and held that the
provision would also take within its fold purchases such as sand, bricks and
granite from unregistered dealers. Therefore, according to the Revenue, the
present case is squarely covered by the law laid down by the Constitution
Bench.
8.3. In such circumstances, it is contended that the authorities
below failed to properly take note of the law declared by the Honourable
Supreme Court and, consequently, this Court is required to interfere with the
concurrent findings of the authorities below on the substantial questions of
law involved in the present tax case appeal.
8.4. Per contra, the learned counsel appearing for the State
Revenue would submit that the contention advanced on behalf of the
assessee, namely that Section 3-B controls or excludes the operation of
Section 7-A, is contrary to the law laid down by the Honourable Supreme
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TCR(MD).Nos.23, 24, 25, 26, 27, 28 & 30 of 2024
Court. According to the learned State Counsel, the Honourable Supreme
Court in State of Tamil Nadu v. M.K. Kandaswami categorically held that
Section 7-A is an independent charging provision enacted to plug leakage
and evasion of tax and that the said provision operates independently of the
other charging provisions of the Act.
8.5. The learned State Counsel would further submit that the very
object of Section 7-A is to prevent evasion and to ensure that goods do not
escape the tax net merely because the transaction was effected through
unregistered dealers. Reliance was also placed upon the judgment of the
Honourable Supreme Court in Hotel Balaji v. State of Andhra Pradesh
wherein the constitutional validity and the independent character of
purchase tax provisions analogous to Section 7-A were upheld and the
Honourable Supreme Court recognised the legislative competence to impose
purchase tax where goods had escaped levy at the earlier point.
8.6. The learned State Counsel further relied upon the judgment of
the Honourable Supreme Court in Assistant Commissioner v. Nandanam
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TCR(MD).Nos.23, 24, 25, 26, 27, 28 & 30 of 2024
Construction Company and contended that the ratio laid down therein
squarely applies to the facts of the present case. According to him, the
provisions under Section 7-A(1)(a) of the Tamil Nadu General Sales Tax Act
are substantially similar to the corresponding provisions under the Andhra
Pradesh General Sales Tax Act and considered by the Honourable Supreme
Court. In the said decision, the expression “or otherwise” occurring in the
provision was interpreted to include utilisation of goods purchased from
unregistered dealers in the execution of works contracts, including purchase
of sand and other construction materials from unregistered dealers.
8.7. The learned State Counsel would further submit that the
expressions employed in purchase tax provisions such as “consumes”,
“uses” and “otherwise disposes of” are required to receive a wide
interpretation so as to effectuate the object of the enactment and prevent tax
avoidance.
8.8. Refuting the contention regarding double taxation, the
learned State Counsel would submit that the levy under Section 7-A and the
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TCR(MD).Nos.23, 24, 25, 26, 27, 28 & 30 of 2024
levy under Section 3-B operate in entirely different spheres. According to
him, Section 7-A relates to purchase tax, whereas Section 3-B relates to
transfer of property in goods involved in execution of works contracts.
Therefore, the nature, character and taxable event under both provisions are
distinct and separate. In this regard, reliance was placed upon the
Constitution Bench judgment of the Honourable Supreme Court in the case
of Builders’ Association of India v. Union of India wherein the Honourable
Supreme Court held that after the Forty-Sixth Constitutional Amendment,
tax on transfer of property in goods involved in works contracts constitutes
a distinct species of levy traceable to Article 366(29-A) of the Constitution
of India.
8.9. The learned State Counsel further contended that even after
the introduction of Section 3-B pursuant to the Forty-Sixth Constitutional
Amendment, Section 7-A continued to independently govern purchases
effected from unregistered dealers where no tax had been suffered at the
seller’s point.
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8.10. According to the Revenue, in the present case, the
controversy does not arise out of transfer of property by a registered dealer,
but out of purchases effected from unregistered dealers for use in execution
of works contracts. Hence, Section 7-A independently stands attracted. The
learned State Counsel also relied upon various Division Bench judgments of
this Court wherein it has been consistently held that utilisation of goods
purchased from unregistered dealers in execution of works contracts would
attract liability under Section 7-A, notwithstanding the levy under Section
3-B.
8.11. It is therefore contended that when the seller is a registered
dealer and tax has already been collected at the seller’s point, purchase tax
under Section 7-A would not arise. However, where the purchases are
effected from unregistered dealers and no tax has been paid at the seller’s
point, the liability to purchase tax automatically shifts upon the purchaser
under Section 7-A. Since, in the present case, the purchases were admittedly
made from unregistered dealers, the authorities below rightly imposed
purchase tax under Section 7-A and correctly completed the assessment in
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TCR(MD).Nos.23, 24, 25, 26, 27, 28 & 30 of 2024
accordance with law.
8.12. Insofar as the contention relating to deemed sale is
concerned, Section 3-B would apply only when there is a taxable transaction
involving transfer of property in goods. In the present case, the authorities
have concurrently found that the purchases were made from unregistered
dealers. Therefore, there is no question of application of Section 3-B, and
the contention of the assessees that there was no loss of revenue cannot be
accepted.
9. This Court considered the rival submissions and perused the
records and also went through the impugned order and also the precedents
relied on either side.
10. Discussion:
10.1. As per the finding of the assessing officer, first appellate
authority and Tamil Nadu Sales Tax Appellate Tribunal (AB) Madurai, the
assessee had purchased sand, gravel and jelly from unregistered dealers, and
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TCR(MD).Nos.23, 24, 25, 26, 27, 28 & 30 of 2024such goods were utilised in the execution of works contracts. The assessee
neither disputed the said finding nor adjudicated said issue either before the
Tamil Nadu Sales Tax Appellate Tribunal or this Court. This Court also
finds no perversity in the said finding.
11. Legislative history of imposition of Sales Tax on “works
contract”:
11.1. Prior to the Forty-Sixth Constitutional Amendment, the
Government has no jurisdiction to impose the sale tax on “works contract”
in view of the Constitution Bench of the Hon’ble Supreme Court of India in
the case of State of Madras v. Gannon Dunkerley & Co. reported in (1958)
9 SCC 353.
11.2. In view of the above decision no sales tax would be levied
on the amount received under the work contracts by assessee like contractor
even though it had supplied goods for construction of the building.
11.3. Thereafter, pursuant to the recommendations of the Law
Commission of India, Parliament introduced the Forty-sixth Constitutional
Amendment incorporating Article 366(29-A) w.e.f. 02.02.1983:
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TCR(MD).Nos.23, 24, 25, 26, 27, 28 & 30 of 2024“29-A “ tax on the sale or purchase of goods”
includes-(a) (…..)
(b) a tax on the transfer of property in goods
(whether as goods or in some other form) involved in the
execution of a works contract;”
11.4. The constitutional validity of the said amendment was
subsequently challenged before the Supreme Court of India, and the Apex
Court upheld its validity vide reported judgment in the case of Builders
Association of India -vs- Union of India reported in (1989) 2 SCC 645.
11.5. Thus, after the Forty-sixth Constitutional Amendment, the
legal position stands altered and a works contract, which was earlier
considered indivisible, has now become divisible for the purpose of
taxation. Therefore, each state amended its sales tax laws and made
provisions for the imposition of sales tax in relation to works contract. The
Government of Tamil Nadu also brought the Section 7-A of Tamil Nadu
General Sales Tax Act, 1959 “to levy the purchase tax on works contract”.
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11.6. The said Section 7-A is both charging as well as remedial
provision, the very object of the provision is to plug the leakage of revenue
and prevent the evasion of tax.
11.7. The constitutional validity of Section 7-A of the Tamil Nadu
General Sales Tax Act, 1959 was initially challenged before the Full Bench
of this Court in the decision reported in 1971 (28 STC 227). The Full Bench
accepted the contention of the assessee and declared the provision ultra
vires on the ground that Section 7-A was controlled by Section 3 of the Act.
The said Full Bench judgment was challenged before the Supreme Court of
India. The Hon’ble Supreme Court in the case of the State of Tamil Nadu
-vs- M.K.Kandaswami and Others reported in (1975) 4 SCC 745 overruled
the judgment of the Full Bench and categorically held that Section 7-A is
not subject to Section 3 of the Act. The Apex Court further held that Section
7-A itself is an independent charging provision, and therefore the authorities
are empowered to levy purchase tax upon the assessee liable under the said
provision and the relevant paragraph no.34 of the judgment reads as
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TCR(MD).Nos.23, 24, 25, 26, 27, 28 & 30 of 2024
follows:
“ 34. In our opinion, the Kerala High Court has
correctly construed Section 5-A of the Kerala Act which is in
pari materia with the impugned Section 7-A of the Madras
Act. “Goods the sale or purchase of which is liable to tax
under this Act in Section 7-A(1)” means ‘taxable goods’, that
is, the kind of goods, the sale of which by a particular person
or dealer may not be taxable in the hands of seller but the
purchase of the same by a dealer in the course of his business
may subsequently become taxable. We have pointed out and it
needs to be emphasised again that Section 7-A itself is a
charging section. It creates a liability against a dealer on his
purchase turnover with regard to goods, the sale or purchase
of which though generally liable to tax under the Act, have
not due to the circumstances of particular sales, suffered tax
under Sections 3, 4 or 5, and which after the purchase, have
been dealt by him in any of the modes indicated in clauses (a),
(b) and (c) of Section 7-A(1).”
11.8. That being the situation, the issue of sales tax liability on the
purchase made on the sand, bricks, granite and other materials in execution
of the building contract came before the Division Bench High Court of
Andhra Pradesh and the High Court held that sand, blue metals, and similar
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TCR(MD).Nos.23, 24, 25, 26, 27, 28 & 30 of 2024materials purchased by the assessee were used only for construction
purposes and not for manufacture of other goods for sale, and therefore
were not liable to purchase tax vide reported judgment in the case of
Nandanam Construction Company v. Assistant Commissioner judgment
reported in 1986 (61 STC 337). The said judgment was challenged before
the Hon’ble Supreme Court.
11.9. Pending the same, the similar issue arose before the Division
Bench of this Court in the case of State of Tamil Nadu -vs- East Coast
Constructions and Industries reported in (1986) 61 STC 337 and the
Division Bench of this Court upheld the view taken by the tribunal that
Section 7-A(1)(a) of the TNGST Act will not apply to the assessee case, for
the goods have been utilised for the construction of buildings and not in the
manufacture of other goods for sale, has to be upheld as correct.
11.10. Subsequently, the said decision of the Division Bench of
High Court of Andhra Pradesh in the case of Nandanam Construction
Company v. Assistant Commissioner judgment reported in 1986 (61 STC
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TCR(MD).Nos.23, 24, 25, 26, 27, 28 & 30 of 2024
337) was overruled by the Constitution Bench of the Hon’ble Supreme
Court in the case of Asstt. Commr. (Intelligence) v. Nandanam
Construction Co. reported in (1999) 8 SCC 69 and the relevant paragraph is
as follows:
“11. We are concerned in this case only with sub-
clause (a) of clause (ii) of Section 6-A, that is, either
consumption of such goods in the manufacture of other goods
for sale or otherwise. Clause (ii) of Section 6-A of the Act
postulates levy of tax on purchase of goods from a person
other than a registered dealer for consumption or disposal or
despatch of goods outside the State. So the scheme of clause
(ii) of Section 6-A of the Act is that when the goods cease to
exist in the original form or cease to be available in the State
for sale or purchase, the purchasing dealer of such goods is
liable to tax if the seller is not or cannot be taxed. To our
mind, it appears that the object of Section 6-A(ii)(a) of the Act
is to levy purchase tax on goods consumed either for the
purpose of manufacture of other goods for sale or consumed
otherwise. If the view in Pio Food Packers [1980 Supp SCC
174 : 1980 SCC (Tax) 319 : (1980) 3 SCR 1271] is accepted
the result would be that the expression “otherwise” will
qualify the expression “sale” and not the expression
“manufacture”, which appears to us to be erroneous on aPage 27 of 40
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TCR(MD).Nos.23, 24, 25, 26, 27, 28 & 30 of 2024plain construction of the provision. The intention of the
legislature, it appears to us, is to bring to purchase tax in
either event of consumption of goods in the manufacture of
goods for sale or consumption of goods in any other manner.
Once the goods are utilised in the construction of buildings
the goods cease to exist or cease to be available in that form
for sale or purchase so as to attract the tax and, therefore, the
correct meaning to be attributed to the said provision would
be that tax will be attracted when such goods are consumed in
the manufacture of other goods or are consumed otherwise.
Therefore, while agreeing with the view in Ganesh Prasad
Dixit [(1969) 1 SCC 492 : (1969) 3 SCR 490] on this aspect,
we overrule to this extent the view expressed in Pio Food
Packers [1980 Supp SCC 174 : 1980 SCC (Tax) 319 : (1980) 3
SCR 1271] .”
11.11. In view of the above statutory provisions and affirmative
decision of the Hon’ble Constitution Bench judgment reported in (1999) 8
SCC 69, the sales tax authority has jurisdiction to impose the purchase tax
on the purchase of bricks, blue metals, sand against the contractor, the
authority issued the proceedings to levy the purchase tax against the
assessee herein in the above mentioned various assessment year both under
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TCR(MD).Nos.23, 24, 25, 26, 27, 28 & 30 of 2024
the “TNGST Act” and “TNVAT Act”.
11.12. The assessee challenged the same before the sales tax
appellate authority, the appellate authority had placed the reliance on the
judgment of the Division Bench in the case of State of Tamil Nadu -vs-
East Coast Constructions and Industries reported in (1986) 61 STC 337
and accepted the case of the assessee that they are not liable to pay purchase
tax as stated in the assessment of the purchase tax on purchase price of sand,
blue metal, etc. and set aside the assessment order. The said order also was
confirmed by the Sales Tax Appellate Tribunal with the following specific
finding:
““The expression “otherwise” occurring in clause (a)
will qualify only sale and not the expression “consumed”.
Therefore, that provision will come into play only when the
purchasing dealer consumes the goods in the manufacture of
other goods for sale or otherwise. Clause (a) obviously cannot
apply when the purchasing dealer consumes the goods in the
construction of buildings, which is an immovable property and
can in no sense be called “other goods”. In our view, clause (a)
can be invoked only when the purchasing dealer consumes the
goods purchased in the manufacture of other movablePage 29 of 40
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TCR(MD).Nos.23, 24, 25, 26, 27, 28 & 30 of 2024properties and not when the goods purchased are in the
construction of buildings, which cannot be held to be a movable
property.”11.13. This Court is unable to concur with the finding of the both
appellate authority and the tribunal that the authority has no jurisdiction to
impose the sales tax under Section 7-A of the TNGST Act and Section 12 of
the TNVAT Act in view of the Constitution Bench judgment of the Hon’ble
Supreme Court in the case of Asstt. Commr. (Intelligence) v. Nandanam
Construction Co. reported in (1999) 8 SCC 69. Our view also is supported
by the various Division Benchs of this Court in the cases of State of Tamil
Nadu -vs- Pari Trading Co. reported in 2010 SCC OnLine Mad 6578,
Ruchi Soya Industries Limited -vs- Commercial Tax Officer and Ors.
reported in (2008) 12 VST 546 (Mad).
11.14. A similar case under the provision under TNVAT Act was
elaborately dealt by the Hon’ble Judge of this Court in the case of
J.K.Traders -vs- Principal Secretary, Chepauk, Chennai and another
reported in 2023 SCC OnLine Mad 7914 and it was held against the assesee
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TCR(MD).Nos.23, 24, 25, 26, 27, 28 & 30 of 2024
and the relevant paragraphs 11.1 and 11.2 are as follows:
“11. Object of purchase tax :
11.1. It may be relevant to set out broadly the object
and purpose of levying purchase tax. The provision levying
purchase tax is by itself a charging provision as well as a
remedial provision, the main object being to plug the leakage
and prevent evasion of tax. In this context it is useful to refer to
the judgment of the honourable Supreme Court in State of Tamil
Nadu v. M. K. Kandaswami [1975] 36 STC 191 (SC) ; (1975) 4
SCC 745, wherein, the object of levy of purchase tax was
explained. The relevant portion is extracted hereunder (page 198
in 36 STC) :
“It may be remembered that section 7A is at once a
charging as well as a remedial provision. Its main object
is to plug leakage and prevent evasion of tax. In
interpreting such a provision, a construction which
would defeat its purpose and, in effect, obliterate it from
the statute book, should be eschewed. If more than one
construction is possible, that which preserves its
workability, and efficacy is to be preferred to the one
which would render it otiose or sterile. The view takenPage 31 of 40
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TCR(MD).Nos.23, 24, 25, 26, 27, 28 & 30 of 2024by the High Court is repugnant to this cardinal canon of
interpretation.”
11.2. Purchase tax under the TNGST Act and the
TNVAT Act–Comparison :
Single point levy under the TNGST Act has given way to value
added tax which is a multi-point levy with the benefit of input-
tax credit, of the tax paid on the purchases being available to be
set-off against the out put tax liability, subject to complying with
the conditions stipulated. However, the purpose and object of
purchase tax has not undergone any change even under value
added tax, but continues to remain the same viz., to plug loop
holes and prevent evasion of tax and ensure that goods are
subject to tax at least once before they cease to exist in the State.
To appreciate the same, it may be relevant to contrast the
provision relating to levy of purchase tax under the TNGST Act
and the TNVAT Act respectively, the following table containing
the provisions is set out below :
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TCR(MD).Nos.23, 24, 25, 26, 27, 28 & 30 of 2024The Tamil Nadu General Sales tax Act, Tamil Nadu Value Added tax
1959 Act, 2006
Section 7A. Levy of purchase tax.—(1) 12. Levy of purchase tax.—(1)
Subject to the provisions of sub-section Subject to the provisions of sub-
(1) of section 3, every dealer who in the section (1) of section 3, every
course of his business purchases from a dealer, who in the course of his
registered dealer or from any other business purchases from a
person, any goods, the sale or purchase registered dealer or from any
of which is liable to tax under this Act in other person, any goods (the sale
circumstances in which no tax is payable or purchase of which is liable to
under sections 3 or 4, as the case may tax under this Act), in
be, not being a circumstance in which circumstances in which no tax is
goods liable to tax under sub-section (2), payable by that registered dealer
(2A) or (2C) of section 3 or section 4, on the sale price of such goods
were purchased at a point other than the under this Act, and either—
taxable point specified in the First, the
Fifth, the Eleventh or the Second
Schedule], respectively, and either,—
(a) consumes or uses such goods in or (a) consumes or uses such goods
for the manufacture of other goods for in or for the manufacture of other
sale or otherwise ; or goods for sale or otherwise ; or
(b) disposes of such goods in any (b) disposes of such goods in any
manner other than by way of sale in the manner other than by way of sale
State ; in the State ; or
(c) despatches or carries them to a place (c) despatches or carries them to
outside the State except as a direct result a place outside the State except
of sale or purchase in the course of inter- as a direct result of sale or
State trade or commerce, or. .. purchase in the course of inter-
State trade or commerce or in the
course of export out of the
territory of India; or
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TCR(MD).Nos.23, 24, 25, 26, 27, 28 & 30 of 2024
(e) installs and uses such goods in the (d) installs and uses such goods
factory for the manufacture of any goods in the factory for the manufacture
shall pay tax on the turnover relating to of any goods, shall pay tax on the
the purchase aforesaid at the rate turnover relating to the purchase
mentioned in section 3 or 4, as the case aforesaid at the rate specified in
may be. the Schedules to this Act.
Section 7-A(2). Notwithstanding (2) Notwithstanding anything
anything contained in sub-section (1), contained in clause (24) of
the provisions of section 7 shall apply to section 2, the dealer who pays tax
a dealer referred to in sub-section (1) under sub-section (1) shall be
who purchases goods the sale of which entitled to input tax credit on the
is liable to tax under sub-section (1) of goods specified in the First
section 3 and whose total turnover for a Schedule.
year is not less than one lakh of rupees
but not more than two lakhs of rupees,
and such a dealer may, at his option
instead of paying the tax in accordance
with the provisions of subsection (1),
pay tax at the rates mentionedin sub-
section (1) of section 7 :
Provided that this sub-section shall not
apply to the purchase made on or after
the 1st day of April, 1990.
Section 7-A (3). Every dealer liable to
pay purchase tax under sub-section (1),
shall, for the purpose of this Act, be
deemed to be a registered dealer.
Though there are certain additions and omissions, I don’t think that it would
materially alter the object or the interpretation of the above section.
Importantly in both the regimes the charges under sections 7A and 12 of the
TNGST Act and TNVAT Act, would get attracted if goods liable to tax are
purchased “in circumstances in which no tax is payable” and the goods so
purchased are dealt within any of the manner or falls within the
circumstances set out in clauses (a) to (d) to section 12 of the TNVAT Act,Page 34 of 40
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TCR(MD).Nos.23, 24, 25, 26, 27, 28 & 30 of 2024including goods so purchased being despatched to a place outside the State
otherwise than by way of sale in the course of inter-State trade or
commerce.”11.15.Both appellate authority and the tribunal failed to consider
the above settled law. In view of the above law laid down by the Hon’ble
Supreme Court that the assessees engaged in work contract namely
construction work for which they buy the material such as sand and bricks
from the persons other than the registered dealers are liable to pay purchase
tax under the relevant provisions of the sales tax, this Court finds perversity
in the impugned orders of both appellate authority and tribunal. In the
result, the impugned orders are liable to be set aside and we hold the order
of assessment is in accordance with law and within jurisdiction.
11.16. To consider the further submission of the learned counsel
appearing for the assessee relating to the deemed sale under Section 3-B of
the TNGST Act, it is relevant to look into the provisions of Sections 3-B(1)
and 3-B(2)(b) of TNGST Act:
“ Section 3-B. Levy of tax on the transfer of goods
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TCR(MD).Nos.23, 24, 25, 26, 27, 28 & 30 of 2024involved in works contract. –
(1) Notwithstanding anything contained in sub-
sections (2-B), (3), (4), (7) and (8) of section 3, or section 7-
A, but subject to the other provisions of this Act including the
provisions of sub-section (1) of section 3, every dealer
referred to in item (vi) of clause (g) of section (2) shall pay,
for each year, a tax on his taxable turnover of transfer of
property in goods involved in the execution of works contract
at the rates mentioned in [sub-section (2), (2-A) or (2-C)] of
section 3 or, as the case may be, in section 4.
Explanation:- Where any works contract involves
more than one item of work, the rate of tax shall be
determined separately for each item of work.
(2) The taxable turnover of the dealer of transfer of
property involved in the execution of works contract shall, on
and from the 26th day of June 1986, be arrived at after
deducting the following amounts from the total turnover of
that dealer:-
(a) …..
(b) all amounts for which any goods, specified in
the First Schedule or Second Schedule, are purchased from
registered dealers liable to pay tax under this Act and used in
the execution of works contract in the same form in which
such goods were purchased:”Page 36 of 40
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TCR(MD).Nos.23, 24, 25, 26, 27, 28 & 30 of 202411.17. The validity of the Section 3-B(2)(b) of the TNGST Act
was upheld by the Division Bench of this Court in the case of Apparels and
Handloom Exporters Association and Others -vs- State of Tamil Nadu
and Others reported in (2003) 129 STC 167.
11.18. Considering the non-abstante clause in the Section 3-B and
the provision of the 3-B(2)(b), in view of the finding of the authorities that
assessee purchased the sand, bricks from unregistered dealers, the question
of deemed sale will not arise and this Court is therefore unable to accept the
argument of the learned counsel appearing for the assessee that there was
already sufferance of tax in respect of the goods in question. Further,
Section 3-B operates in a different field concerning the taxable turnover
arising out of transfer of property involved in execution of works contracts
namely construction contract where the purchase of materials like sand etc.
was made through “the registered dealer”. On the other hand, Section 7-A
specifically deals with purchases effected “from unregistered dealers” who
had not suffered tax. Both provisions operate independently in their
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TCR(MD).Nos.23, 24, 25, 26, 27, 28 & 30 of 2024
respective spheres.
11.19. Therefore, this Court holds that purchases made by a works
contractor from unregistered dealers are exigible to purchase tax under
Section 7-A of the Act.
11.20. In view of the above finding that the authority exercised
the jurisdiction under Section 7-A in accordance with law, Section 12 (5) of
TNGST Act is attracted as it is a case of incorrect and incomplete returns
and therefore, this Court finds every justification in imposing the levy of
sales tax and penalty against the assesee.
11.21. Some of the tax cases are relating to the assessment under
the TNVAT Act and in view of the similar provisions, no further
deliberations are necessary and hence, this Court also uphold that the
authority has jurisdiction to impose the purchase tax along with penalty.
Accordingly, the questions of law framed are answered against the assessee
and in favour of the revenue.
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TCR(MD).Nos.23, 24, 25, 26, 27, 28 & 30 of 2024
12. Conclusion:
In result, TCR(MD).Nos.24, 25, 26, 27, 28 & 30 of 2024 are
allowed and the impugned orders are hereby quashed and the assessing
authority is hereby directed to proceed further in accordance with law to
recover the amount. There shall be no order as to costs.
[N.A.V, J.] & [K.K.R.K,J.]
09.07.2026
NCC :Yes/No
Index :Yes/No
Internet :Yes/No
sbn/pal
To:
1. Tamil Nadu Sales Tax Appellate Tribunal (AB),
Madurai.
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TCR(MD).Nos.23, 24, 25, 26, 27, 28 & 30 of 2024
N.ANAND VENKATESH, J.
and
K.K.RAMAKRISHNAN, J.
sbn
Pre-delivery Judgment made in
TCR(MD).Nos.24, 25, 26, 27, 28 & 30 of 2024
09.07.2026
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