1963 (12) TMI 20 - HC - VAT and Sales Tax

Court rules works contract, not sale of goods, petitioner not liable for sales tax

The Court determined that the contract between the petitioner and the Project was a works contract, not a sale of goods. Consequently, the petitioner was ... - Issues Involved:1. Whether the contract between the petitioner and the Project was a sale of goods or a works contract.2. Whether the petitioner was liable to pay sales tax and penalty under the Madhya Pradesh General Sales Tax Act, 1958.3. Whether the Sales Tax Authorities had jurisdiction and acted within their powers.4. Whether the petitioner had availed the appropriate remedy under the Act.Issue-wise Detailed Analysis:1. Whether the contract between the petitioner and the Project was a sale of goods or a works contract:The petitioner argued that the contract was for the transport and carriage of sand and not a sale, as the sand always remained the property of the Project. The Sales Tax Officer and the Commissioner of Sales Tax, however, held that the contract was for the supply of sand and not a works contract. The Court examined the terms of the lease and the contract, noting that the Project held the lease for the quarry and was responsible for paying rent and royalties. The Court found that the petitioner was only responsible for extracting and transporting the sand, and no proprietary rights in the quarry were transferred to the petitioner. The sand remained the property of the Project, and the petitioner did not transfer any property rights in the sand to the Project. Thus, the contract was a works contract, not a sale.2. Whether the petitioner was liable to pay sales tax and penalty under the Madhya Pradesh General Sales Tax Act, 1958:The Sales Tax Officer assessed the petitioner to sales tax and imposed a penalty for failing to apply for registration and submit returns. The petitioner contended that it was not a 'dealer' under the Act and did not sell any sand to the Project. The Court agreed with the petitioner, stating that the sand remained the property of the Project, and the petitioner was only responsible for the labor and transport. Therefore, the petitioner could not be assessed to sales tax, and the penalty imposed was not justified.3. Whether the Sales Tax Authorities had jurisdiction and acted within their powers:The respondents argued that the Sales Tax Authorities had the jurisdiction to construe the contract and determine whether it was for the supply of goods or a works contract. The Court found that the authorities had misconstrued the agreements and misinterpreted the nature of the contract. The Court noted that the legal effect of the words and expressions used in a document is a question of law, and the authorities had made an error of law apparent on the face of the record.4. Whether the petitioner had availed the appropriate remedy under the Act:The respondents contended that the petitioner should have filed an appeal under section 38 of the Act and brought the matter before the Court on a reference under section 44. The Court observed that the petitioner had the right to move the Commissioner under section 39 for a revision of the assessment order. Since the petitioner had filed a revision petition and no order was made by the Commissioner enhancing or modifying the assessment, the petitioner had availed the remedy provided by the Act. The Court held that the petitioner was entitled to invoke the jurisdiction of the Court under Articles 226 and 227 of the Constitution.Conclusion:The Court allowed the petition, quashed the decisions of the Sales Tax Officer and the Commissioner of Sales Tax, and restrained the respondents from giving effect to those orders and from making any demand of tax or penalty pursuant to those orders. The petitioner was awarded costs, and the security deposit was ordered to be refunded.