Works contract classification turned on departmental ownership of materials and absence of sale in PCC block manufacture.

A contract for manufacturing and supplying PCC blocks was treated as a works contract rather than a contract of sale because the department supplied cement, water and land free of cost, retained ownership in the supplied materials, and the contractor never acquired ownership in the raw materials or finished blocks. The contractor's own material component was found to remain below the exemption threshold prescribed by the relevant notification under the Rajasthan Sales Tax Act, supporting non-taxability as a sale. The comparison with an earlier similar contract was accepted, while a cited case was distinguished on the ground that the contractor there owned the raw materials and finished goods. On that basis, the assessment order and show-cause notice were liable to be quashed.

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Issues: Whether the contract for manufacturing and supply of PCC blocks was a contract for work and labour or a contract for sale, and whether the assessment order and notice based on taxability were liable to be quashed.

Analysis: The contract terms showed that cement and water were supplied free by the department, land was also provided free, and the materials supplied by the department remained its property. The petitioner arranged only certain specified materials and incurred costs that were found to be below the threshold fixed by the exemption notification issued under section 4(2) of the Rajasthan Sales Tax Act, 1954. On comparison with the earlier decided contract in Ganpat Ram & Co., the contract was found to be materially similar, while the facts of Sunder Das Jindal & Company were distinguishable because in that case the raw materials and finished goods remained the contractor's property. On these terms, ownership in the raw materials and finished blocks never vested in the contractor and there was no sale.

Conclusion: The contract was a works contract and not a contract for sale, so the assessment order and the show-cause notice were liable to be quashed.

Ratio Decidendi: Where the department supplies essential materials and retains ownership in the supplied and resultant goods, and the contractor's material component remains within the exemption threshold, the transaction is a works contract and not a sale for sales tax purposes.

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