Works contract supply of materials treated as a taxable sale where property passed for consideration and bill adjustments were made.
Supply of specified materials by an owner-corporation to contractors under a works contract amounted to a taxable sale where the contract provided for delivery at fixed rates, deduction of the materials' value from the contractors' bills, and return or accounting for unused stock. Reading the contract as a whole, the Court found the substance of the arrangement showed transfer of property in the goods for consideration, so the transaction fell within the sales tax net under the M.P. General Sales Tax Act, 1958. The writ petitions were therefore unsustainable and were dismissed, leaving the tax demand and connected action undisturbed.
Issues: Whether supply of iron, steel and cement by the petitioner-corporation to its contractors under the contract terms amounted to a sale liable to sales tax under the M.P. General Sales Tax Act, 1958.
Analysis: The contract clause governing supply of materials showed that the corporation agreed to supply specified materials for use in the work at fixed rates, the value of such materials was to be adjusted by deduction from the contractor's bills, and unused materials were to be returned or accounted for. The Court compared this clause with the clauses considered in earlier decisions and held that the substance of the arrangement was the same. On the settled principle that the whole contract must be read as a whole and that a supply of goods for consideration with transfer of property in the goods constitutes a sale, the petitioner's attempt to distinguish the arrangement was rejected.
Conclusion: The supply of materials to the contractors amounted to a sale and was liable to sales tax; the challenge failed.
Final Conclusion: The writ petitions were not sustainable and were dismissed, leaving the tax demand and connected action undisturbed.
Ratio Decidendi: Where a contract for execution of works provides for supply of specified materials by the owner at fixed rates with adjustment of their value against the contractor's dues, the transaction amounts to a taxable sale if the substance of the arrangement shows transfer of property in the goods for consideration.
TaxTMI 
AI Drafter ✕
TaxTMI 
