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Issues: (i) whether supplies of materials by the contractor to its sub-contractors and other consortium members constituted sales exigible to tax and made it a dealer under the Bengal Finance (Sales Tax) Act, 1941; (ii) whether sales of scrap, unserviceable and surplus materials were exigible to tax as transactions in the course of the business of selling goods; and (iii) whether the underlying contract with the Government was divisible.
Issue (i): whether supplies of materials by the contractor to its sub-contractors and other consortium members constituted sales exigible to tax and made it a dealer under the Bengal Finance (Sales Tax) Act, 1941.
Analysis: The materials brought to the site were governed by the contract clause under which they remained the property of the Government and were to be used only for construction at the site. The entries in the books showing transfers to sub-contractors and consortium members did not alter the legal character of the transactions. The debits were confined to basic rates and incidental charges and were made for adjustment of work accounts, not pursuant to any sale agreement. In the absence of transfer of property in the goods by the applicant, the transactions could not answer the statutory definition of sale and could not make the applicant a dealer on that footing.
Conclusion: The supplies to sub-contractors and consortium members were not sales and were not exigible to tax; the finding was in favour of the assessee.
Issue (ii): whether sales of scrap, unserviceable and surplus materials were exigible to tax as transactions in the course of the business of selling goods.
Analysis: The applicant's main activity was construction, not the business of selling goods. Sales of scrap and surplus materials were not part of that main business, and on the authorities governing the extended definition of business, such isolated or incidental disposals did not by themselves constitute carrying on the business of selling goods in West Bengal. The prior decision relied upon on similar facts was followed.
Conclusion: The sales of scrap, unserviceable and surplus materials were not exigible to tax and did not make the applicant a dealer; the finding was in favour of the assessee.
Issue (iii): whether the underlying contract with the Government was divisible.
Analysis: The contract related to one specified project, namely the construction of Durgapur Steel Works, and was not merely separate in parts because of internal allocation of work. The mere division of performance among participants did not convert a single project contract into a divisible contract.
Conclusion: The contract was indivisible; the finding on divisibility was against the revenue and in favour of the assessee.
Final Conclusion: The reference was answered by holding that the applicant was not liable to sales tax on either the inter se material supplies or the scrap and surplus disposals, and the contract was not divisible.
Ratio Decidendi: A transaction is not a sale unless there is transfer of property in goods for consideration, and disposals incidental to a contractor's main construction activity do not constitute the business of selling goods merely because they are systematic or entered in accounts.
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