Works contract taxability turns on a separate sale of materials; an indivisible building contract is not a sale of goods.

An indivisible building or works contract does not amount to a sale of goods under the ordinary law of sales where materials are supplied only in the course of construction and there is no separate agreement fixing their price. Taxation of such transfers is permissible only when the parties have made distinct contracts, one for labour or services and another for the sale of materials for consideration. On the stated facts, the contractor was carrying out a building contract simpliciter, so he was not liable to registration or assessment as a dealer merely because materials were used in execution. The attempted statutory expansion of "sale" and "sale price" to cover these transactions was therefore beyond legislative competence.

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Issues: Whether a building contractor executing an indivisible building contract, under which materials are supplied without any separate agreement for their price, can be treated as a dealer liable to registration and assessment to sales tax under the Assam Sales Tax Act, 1947; and whether the statutory definitions enlarging "sale" and "sale price" to cover such transactions are within legislative competence.

Analysis: The statutory scheme sought to treat a transfer of property in goods involved in the execution of a contract as a sale and to compute the taxable turnover by reference to the amount payable under the contract after deducting labour component. The controlling principle applied was that the expression "sale of goods" must be understood in its legal sense, as a sale in the ordinary law of sales of movable property for a price, with property passing pursuant to that bargain. In an entire and indivisible building contract, the supply of materials used in construction does not amount to a sale of goods. Only where the parties have entered into distinct and separate agreements, one for transfer of materials for money consideration and another for labour or services, can the transfer of materials be taxed as a sale. On the facts found, the petitioner was carrying out only a building contract simpliciter, without separate sale arrangements for materials. The enlargement of the statutory definitions to bring such indivisible works contract supplies within the tax net was therefore beyond competence.

Conclusion: The petitioner was not liable to be registered or assessed as a dealer merely by reason of executing the building contract, and the impugned expansion of the definitions of "sale" and "sale price" was ultra vires.

Ratio Decidendi: Supply of materials in the execution of an indivisible building or works contract is not a sale of goods unless there is a distinct and separate agreement for the transfer of materials for consideration.

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