(1) Any person responsible for making payment of any sum to any dealer as a consideration for the sale or supply of any goods in pursuance of a contract between such dealer and the Central Government or a State Government (hereinafter referred to in this section as the purchaser), shall before crediting such sum to the account of the dealer or before payment thereof in cash or by issue of a cheque or draft or by any other mode, deduct an amount equal to the amount payable by the purchaser to the dealer by way of tax, where the total amount of the bill exceeds rupees five thousand and shall pay it to the State Government in such manner as may be prescribed.

(2) Notwithstanding anything contained in any other provision of this Act, any person letting out a works contract of value exceeding rupees three lac to a contractor involving sale of any goods in the course of execution thereof by the contractor shall before making the payment of any amount towards the value of such contract to him, deduct at the rate of two percent an amount towards the tax payable by the contractor under this Act.

Provided that no deduction shall be made under sub-section (1) or sub-section (2), if the amount of tax payable by such dealer of person is in respect of sales of any goods. In the course of inter-state trade or commerce or in the course of export out of the territory of India or import in to the territory of India or export out side the State.

(3) On deduction of the amount under sub-section (1), or sub-section (2) the person making such deduction shall issue to the dealer or the contractor, as the case may be, a certificate therefor in the prescribed form and shall deposit such amount into the Government Treasury in such manner and within such period as may be prescribed.

(4) Any person making the payment under sub-section (1) or sub-section (2) shall be deemed to have made the payment on the authority and on behalf of the dealer or the contractor and the receipt for such payment shall constitute a good and sufficient discharge of the liability of the purchaser to the dealer or the contractor to the extent of the amount specified in the receipt.

(5) Where any payment under sub-section (1) or sub-section (2) is made by a purchaser or the person letting out the contract, on behalf of the dealer or the contractor such payment shall constitute a good and sufficient discharge of the liability of the dealer or the contractor to pay tax in respect of such transaction and the amount so paid shall be adjusted by him in such manner as may be prescribed.

(6) Where a person contravenes the provisions of sub-section (1), sub-section (2), or sub-section (3) the Commissioner may impose upon such person by way of penalty an amount which shall be 2 percent per month of the amount required to be deducted under sub-section (1) or sub-section (2), subject to a maximum of 25 percent of such amount.

(7) Any sum which a person is required to deduct under sub-section (1) or sub-section (2) or the penalty imposed under sub-section (6) if it remains unpaid, be recoverable as an arrear of land revenue.

(8) Every person making a deduction under sub-section (1) or sub-section (2) shall furnish a statement in such form, to such authority, in such manner and within such time as may be prescribed.

Explanation - For the purpose of sub-section (2), "person" means-

(i) Department of the Central or the State Government,

(ii) Public Sector Undertaking,

(iii) Municipality and Municipal Corporation,

(iv) Authority constituted under any law for the time being in force,

(v) Limited company.