Composite building contract taxability required proper proof of the contract's true character before separating sale and labour elements.

Assessment under the Bihar Sales Tax Act on a building contract could not be sustained without first determining the true character of the arrangement. Because the formal contract and supporting documents were not produced, it could not be decided whether the agreement was an entire, indivisible works contract beyond sales tax on materials, or a composite arrangement with separable sale and labour elements. The State could tax the sale element only after proper factual enquiry. The assessment order was quashed and the matter remitted for fresh examination of the contract documents and lawful disposal.

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Issues: Whether the assessment made under section 13 of the Bihar Sales Tax Act on the basis of a building contract could be sustained, or whether the matter should be remitted for examination of the true nature of the contract.

Analysis: The contract documents were not fully produced, and only the tender was before the Court. In the absence of the formal contract, it could not be determined whether the arrangement was an entire and indivisible works contract, which would fall outside sales tax on the supply of materials, or whether it comprised two separable agreements, one for sale of materials and another for work and labour. Where a contract is truly composite, the State may separate the sale element and tax it, but that enquiry had to be made on proper evidence. The assessment had proceeded without that factual determination, so a fresh examination of the formal contract and supporting documents was necessary.

Conclusion: The assessment order was quashed and the matter was remitted to the Sales Tax Authorities for fresh investigation and lawful disposal after determining the true character of the contract.

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