Works contract for sand supply not taxable as a sale where ownership stayed with the project throughout

An arrangement for extraction, screening, transport and supply of sand was treated as a works contract rather than a sale because the quarry lease remained in the project's name and title to the sand never passed to the contractor. Contractual terms on labour, tools, transport, inspection, testing, royalty, ground rent and advances were held insufficient to transfer ownership, so sales tax was not attracted. The writ remedy was also held maintainable despite the availability of an appellate route, because revision had already been pursued and the challenge raised an error of law apparent on the record rather than disputed facts. The assessment and penalty orders were quashed.

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Issues: (i) Whether the agreement for extraction, collection, screening, transport and supply of sand to the Project was a contract of sale or merely a works contract, so as to attract sales tax. (ii) Whether the assessee was barred from relief under Article 226 of the Constitution of India because it had not pursued the appellate remedy under the Madhya Pradesh General Sales Tax Act, 1958.

Issue (i): Whether the agreement for extraction, collection, screening, transport and supply of sand to the Project was a contract of sale or merely a works contract, so as to attract sales tax.

Analysis: The quarry lease stood in the Project's name and the Project had the right to extract and dispose of the sand. The contract with the assessee was framed as a works contract for collection and supply of sand, with the assessee undertaking extraction, screening, transport and stacking. The provisions regarding labour, tools, transport, inspection, testing, royalty, ground rent, and advance payments did not transfer ownership of the sand to the assessee. The sand remained the property of the Project throughout, and the financial burden shifted to the assessee did not amount to a transfer of title. The cited authorities were distinguishable because, in those cases, the supplier owned the material or obtained property in it before supply.

Conclusion: The transaction was not a sale of sand by the assessee and was not liable to be taxed as such.

Issue (ii): Whether the assessee was barred from relief under Article 226 of the Constitution of India because it had not pursued the appellate remedy under the Madhya Pradesh General Sales Tax Act, 1958.

Analysis: The assessee had moved the statutory revisional authority under Section 39(1) of the Act. In a certiorari proceeding, the taxing authority could not support its order on new facts not found in the impugned orders. Misconstruction of the two agreements by the taxing authorities constituted an error of law apparent on the face of the record. The existence of an alternative appellate route did not preclude the writ remedy where revision under the Act had already been invoked and the challenge was to legality rather than disputed facts.

Conclusion: The writ petition was maintainable and the assessee was not barred from relief.

Final Conclusion: The assessment and penalty orders were quashed, and the respondents were restrained from enforcing them.

Ratio Decidendi: Where the contract, read with the underlying lease, shows that the goods remained the property of the owner throughout and no proprietary interest was transferred to the contractor, the supply pursuant to that arrangement is not a taxable sale merely because the contractor performs quarrying, processing, transport and related work.

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