Works contract classification and transport charges: manufacture-and-supply arrangement treated as non-sale, but turnover deduction failed.

A contract for manufacture and supply of bricks was treated as a works contract, not a sale, because the materials remained under the customer's control, the contractor worked under strict restrictions, and the bricks were deemed to remain the customer's property through manufacture and delivery; the turnover was therefore not liable to sales tax on that footing. Transport charges were not excluded from taxable turnover because the statute required separate specification and separate charging, and no such bills were produced. The result was partly in favour of the assessee on the works contract issue, but the deduction claim for transport charges failed.

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Issues: (i) Whether the agreement for manufacture and supply of bricks to the Neyveli Lignite Corporation was a works contract and not a sale attracting sales tax; and (ii) whether transport charges could be excluded from the taxable turnover.

Issue (i): Whether the agreement for manufacture and supply of bricks to the Neyveli Lignite Corporation was a works contract and not a sale attracting sales tax.

Analysis: The contract required the contractor to use clay made available under the Corporation's control, manufacture bricks under specified restrictions, supply them only to the Corporation, and comply with conditions showing continuing control over the work and materials. The distinguishing features of the contract made it different from a simple buyer-seller arrangement and different from the contract considered in the earlier Supreme Court decision relied on by the Tribunal. On the terms of the present contract, the bricks remained the Corporation's property throughout the process of manufacture and delivery.

Conclusion: The agreement was a works contract pure and simple, no sale was involved, and the assessee was not liable to be assessed on that turnover.

Issue (ii): Whether transport charges could be excluded from the taxable turnover.

Analysis: Under section 2(r) of the Madras General Sales Tax Act, 1959, read with the relevant rule, amounts charged for anything done in respect of the goods before delivery may form part of turnover unless transport charges are separately specified and separately charged without inclusion in the price of the goods. In the present cases, no bills showing such separate specification and charging were produced.

Conclusion: The transport charges could not be excluded from the turnover and the claim for deduction was rightly rejected.

Final Conclusion: The revision petition concerning the first assessment succeeded, but the connected revision petitions failed, leaving the overall result only partly in favour of the assessee.

Ratio Decidendi: A contract for manufacture and supply will be treated as a works contract, and not a sale, where the materials and process remain under the effective control of the customer and the goods do not pass under a normal buyer-seller transaction; transport charges are deductible from turnover only when they are separately specified and charged in the manner required by the statute and rules.

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