Deemed dealer and taxable sale principles upheld for government supplies; Article 285 immunity does not extend to sales tax on turnover.

The Andhra Pradesh General Sales Tax Act treated the Central Government as a deemed dealer where it buys, sells, supplies or distributes goods for consideration, even outside ordinary business activity. Article 285(1) was construed as protecting Union property from direct taxes only, so it did not bar sales tax on turnover. Supplies of cement and steel to a contractor were treated as a transfer of property in goods for consideration and therefore as a taxable sale under the deeming provisions. On that basis, the assessment was restored and tax liability upheld.

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Issues: (i) Whether the Central Government was a dealer under the Andhra Pradesh General Sales Tax Act, 1957 for supplies made in the course of the works contract. (ii) Whether sales tax on the turnover of the Union's establishment was barred by Article 285(1) of the Constitution of India. (iii) Whether supply of cement and steel to the contractor amounted to a sale liable to tax.

Issue (i): Whether the Central Government was a dealer under the Andhra Pradesh General Sales Tax Act, 1957 for supplies made in the course of the works contract.

Analysis: The definition of dealer in section 2(e) is wide and, by Explanation III, the Central Government or the State Government is deemed to be a dealer when it buys, sells, supplies or distributes goods for consideration, whether or not in the course of business. The Court also noted that the statutory amendment continued that position by expressly bringing the Central Government and the State Government within the deemed dealer concept.

Conclusion: The Central Government was a dealer for the purposes of the Act.

Issue (ii): Whether sales tax on the turnover of the Union's establishment was barred by Article 285(1) of the Constitution of India.

Analysis: Article 285(1) protects the property of the Union from all taxes imposed by a State, but the exemption was held to extend only to taxes directly on property and not to indirect taxes such as sales tax. Applying the distinction between direct and indirect imposts, the Court held that sales tax on turnover does not fall within the constitutional immunity under Article 285(1).

Conclusion: Article 285(1) did not exempt the turnover from sales tax.

Issue (iii): Whether supply of cement and steel to the contractor amounted to a sale liable to tax.

Analysis: Section 2(n) read with Explanation VIII treated transfer of property in goods by the Government for consideration as a sale. On the contract terms and the governing precedent, the Court held that materials supplied for use in the construction work resulted in transfer of property in the goods and therefore constituted a taxable sale.

Conclusion: The supply amounted to a sale liable to tax.

Final Conclusion: The Tribunal's view was unsustainable and the assessment was restored, resulting in tax liability being upheld.

Ratio Decidendi: Where the statute deems the Government to be a dealer and deems governmental transfers of goods for consideration to be sales, sales tax may be levied notwithstanding Article 285(1), because that constitutional exemption is confined to direct taxes on property and does not extend to indirect taxes on turnover.

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