Report No. 61
Point 4-works Contracts
The question whether the power to tax indivisible contracts of works should be conferred on the States has been raised. The present position on the subject, and the possible alternatives, may be briefly stated thus:-
(i) The Union has the power to tax works contracts under Constitution, Seventh Schedule, Union List, entry 97.
(ii) The power to tax inter-State works contracts has not, so far, been exercised by the Union, and the definition of 'sale' in the Central Sales Tax Act does not include works contracts.
(iii) The power to tax works contracts within the State also vests in the Union, under Union List, entry 97 (as interpreted in the judgments of the Supreme Court).
The question whether the power should or should not be transferred to the States, is one of policy. But, for the reasons given in the Report, the Commission prefers its transfer to the States. If this alternative is adopted, there are several drafting devices open, e.g.
(a) amending State list, entry 54, or
(b) adding a fresh entry in the State list, or
(c) inserting in Article 366 a wide definition of "sale". The Commission prefers the last one. It would avoid multiple amendments.
(iv) Whether the course at (iii) should be adopted or not, is a matter of policy, involving financial and political considerations.
(v) In the alternative, power to tax intra-State works contracts could (if a policy decision to that effect is taken by the Centre), be exercised by the Union, and the necessary law passed. The proceeds of the tax imposed thereunder could, then, be distributed to the States. Article 269 of the Constitution may have to be amended in that case.
(vi) Whether the course referred to at (v) above, should be adopted or not, is, again, a matter of policy, involving financial and political considerations.