(1) Notwithstanding anything contained in section 32 or any rules made thereunder or any terms of a contract to the contrary, the person responsible for paying any sum for intra-state purchase of taxable goods from any dealer, wholly or partly in pursuance of a contract between such dealer and the Government or a local authority shall, at the time of payment of any sum to such dealer by any mode of payment, deduct towards tax payable under section 16 an amount equal to such percentage or percentages, not exceeding the rate specified in clause (b) of sub-section (2) of section 16, of such sum, and in such circumstances, as may be prescribed.

(2) The provisions of sub-section (2) to sub-section (6) of section 40 shall, mutatis mutandis, apply for collection of tax at source to be made in terms of this section.