TaxTMI Login
Just a moment...
Press 'Enter' to add multiple search terms. Rules for Better Search
Use comma for multiple locations.
---------------- For section wise search only -----------------
Accuracy Level ~ 90%
of 
Press 'Enter' after typing page number.
of Press 'Enter' after typing page number.
No Folders have been created
Are you sure you want to delete "My most important" ?
NOTE:
of Press 'Enter' after typing page number.
of Press 'Enter' after typing page number.
All Case Laws
of Press 'Enter' after typing page number.
of Press 'Enter' after typing page number.
All Case Laws
Note
Bookmark
Share
Don't have an account? Register Here
of Press 'Enter' after typing page number.
Issues: (i) Whether the agreement contained a severable contract for supply of plant, machinery and equipment distinct from the works contract and liable to sales tax. (ii) Whether the arrangement for procurement of plant and machinery was one of sale or merely one of agency between the contractor and the State.
Issue (i): Whether the agreement contained a severable contract for supply of plant, machinery and equipment distinct from the works contract and liable to sales tax.
Analysis: The contract required the contractor not only to execute the construction work, but also to procure specified plant, machinery, equipment and tools for use in the work. The terms showed a separate arrangement for such procurement, with reimbursement, commission, and accounting provisions independent of the execution of the works. In a works contract, the agreement is to construct according to specifications for a stipulated consideration, and there is no contract to sell the materials used in construction nor does property pass in those materials as movables. The contractual arrangement relating to plant and machinery was therefore not inseparable from the works contract.
Conclusion: The contract was severable to the extent of the plant, machinery and equipment, but the works contract itself did not involve a taxable transfer of property in the materials used in construction.
Issue (ii): Whether the arrangement for procurement of plant and machinery was one of sale or merely one of agency between the contractor and the State.
Analysis: The terms showed that the State provided funds, the contractor purchased the goods after approval, trade discounts were to be credited to the State, the contractor received a purchasing commission, and the contractor was to account for expenditure and hold insurance moneys in trust. These features were consistent with a principal-agent arrangement and not with a contract of sale. Clauses dealing with transportation, insurance, and delivery did not by themselves establish a transfer of title to the contractor or a sale to the State.
Conclusion: The arrangement was one of agency, not sale, and no taxable sale of plant and machinery was established.
Final Conclusion: The appeals succeeded, the High Court's answer on the second question was set aside, and the disputed turnover relating to the procurement arrangement was held not exigible to sales tax.
Ratio Decidendi: In a works contract, property in materials does not pass as movables unless the contract expressly provides for a sale, and where the contractual terms show procurement on behalf of the principal with reimbursement and commission, the relationship is one of agency rather than sale.
TaxTMI 
