Works contract supplies are not sales where title stays with the owner and materials are issued only for incorporation in the work.

Materials supplied to contractors only for incorporation in construction, with title retained by the owner and the contractor obliged to account for consumption and return surplus stock, do not amount to a sale under the U.P. Sales Tax Act, 1948. The court held that the contractual terms negatived any absolute transfer of property in the cement, iron and steel, and mere debit or credit entries did not change the legal character of the transaction. As no sale occurred, the undertaking was not liable to sales tax on the supply.

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Issues: Whether the supply of cement, iron and steel by the undertaking to its contractors for use in construction of factory and other buildings constituted a sale liable to tax under the U.P. Sales Tax Act, 1948, and whether the undertaking could be treated as a dealer carrying on business in such goods.

Analysis: The agreement showed that the materials were to be issued by the owner only for incorporation in the works, that the contractor had to account for their receipt and consumption, return surplus materials, and hold them in custody as trustee while title remained with the owner. The definition of sale under section 2(h) required a transfer of property in goods for consideration, but the contractual terms and surrounding circumstances negatived any absolute transfer of ownership. Mere debit and credit entries in the accounts did not convert the supply into a sale. The clauses relating to unused cement bags and cut pieces of steel also did not indicate a transfer of ownership, since those items were treated as useless or abandoned materials and did not alter the basic legal character of the transaction.

Conclusion: The supply of cement, iron and steel to the contractors was not a sale within section 2(h) of the U.P. Sales Tax Act, 1948, the undertaking was not liable to tax on that supply, and the revisions were allowed.

Ratio Decidendi: Where materials are supplied to a contractor under a works contract only for incorporation in the work, with title retained by the owner and the contractor bound to account for and return surplus materials, the transaction is not a sale and no sales tax liability arises.

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