Construction contractors as dealers under sales tax law, with ordinary material purchases treated as business purchases

A building contractor who buys and consumes construction materials in executing building contracts falls within the definition of "dealer" under the Bombay Sales Tax Act, and such purchases are treated as made in the course of business. Ordinary construction-material purchases were therefore treated as business purchases, while goods that are merely ancillary to the business or form part of capital assets were excluded from that category. The separate character of scaffolding materials was left for further consideration, because the Tribunal had not examined whether they were capital assets or capital goods. Registration obtained on the contractor's own application was not separately in issue once dealer status was established.

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Issues: (i) whether building contractors purchasing and consuming building materials in construction activity are dealers within section 2(11) of the Bombay Sales Tax Act, 1959; (ii) whether purchases of materials used in construction are purchases made in the course of business, and whether scaffolding materials fall within that category; (iii) whether section 22(5A) of the Bombay Sales Tax Act, 1959 applies to a person registered on his own application when such registration is later found to be unwarranted.

Issue (i): whether building contractors purchasing and consuming building materials in construction activity are dealers within section 2(11) of the Bombay Sales Tax Act, 1959

Analysis: A building contractor who purchases materials in the course of carrying on the business of construction and consumes those materials in executing building contracts falls within the statutory definition of dealer. The prior decision relied upon treated such purchasing activity as sufficient to attract the definition where the materials are used in the business undertaking.

Conclusion: The issue was answered in the affirmative, in favour of the Revenue.

Issue (ii): whether purchases of materials used in construction are purchases made in the course of business, and whether scaffolding materials fall within that category

Analysis: Purchases of materials necessary for the execution of the construction business are purchases made in the course of business. However, goods that are merely adjuncts to the business or form part of capital assets are outside that category. On that footing, the general purchases of materials were held to be business purchases, but the character of scaffolding materials as capital assets or capital goods was not examined by the Tribunal and required fresh consideration.

Conclusion: The issue was answered in the affirmative in respect of materials other than scaffolding materials, in favour of the Revenue; the scaffolding materials question was left for determination on remand.

Issue (iii): whether section 22(5A) of the Bombay Sales Tax Act, 1959 applies to a person registered on his own application when such registration is later found to be unwarranted

Analysis: The provision applies only where a person, having obtained registration on his own application, is later found not to have been entitled to registration. Since the respondents were held to be dealers within the meaning of the Act, their registration was held to be proper and the sub-section had no application.

Conclusion: The issue was held not to arise and no separate ruling was required against the respondents.

Final Conclusion: The definition of dealer was applied broadly to construction contractors buying and consuming materials in the course of business, the ordinary construction-material purchases were treated as business purchases, and only the separate question regarding scaffolding materials was left open for further consideration by the Tribunal.

Ratio Decidendi: A construction contractor who purchases materials for use in executing building contracts is a dealer and, save for goods forming part of capital assets or merely ancillary to the business, such purchases are made in the course of business.

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