Works-contract materials treated as a purchase transaction when value is recovered through bill adjustment, attracting purchase tax.

Iron and cement supplied by a public works department under a works contract were treated as a purchase transaction where the contract required the materials to be used only for the work, their value to be adjusted by deduction from the contractor's bills, and unused materials not to be returnable as of right. On that construction, the arrangement was not a mere immediate cash supply but a transfer for the contractor's use with payment recovered through bill adjustment. The supply therefore attracted purchase tax under section 7(1) of the Madhya Pradesh General Sales Tax Act, even though the supplier was not a registered dealer.

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Issues: Whether iron and cement supplied by the Public Works Department to the assessee for use in works executed under the contract constituted a sale liable to purchase tax under section 7(1) of the Madhya Pradesh General Sales Tax Act.

Analysis: Clause 11 of the contract showed that the materials supplied by the department were to be used only for the contract work, that their value was to be adjusted by deduction from the contractor's bills, and that unused materials were not returnable as of right. Reading the clause as a whole, the arrangement was not a mere supply for immediate cash payment, but one in which the contractor obtained and used the materials for the works while the price was recovered by deduction. The provision was wide enough to cover such a purchase even though the supplier was not a registered dealer.

Conclusion: The supply of iron and cement to the assessee was a sale/purchase transaction attracting purchase tax under section 7(1), and the answer to the reference was in favour of the Revenue.

Ratio Decidendi: Where materials supplied by the department under a works contract are intended for the contractor's use and their value is recovered by adjustment against the contractor's bills, the transaction is a purchase liable to purchase tax under the Act.

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