Works contract deemed sale tax upheld where contractor's outside-State purchases were distinct from later intra-State transfer of goods.

Purchases of plant, equipment and materials from suppliers outside West Bengal were treated as distinct from the taxable deemed sale arising when the contractor transferred property in those goods during execution of a turnkey works contract. Because the contractor had separate purchase contracts with outside-State vendors, the inter-State movement ended on delivery to the contractor, and the later incorporation of the goods into the works contract was the relevant taxable event under article 366(29A)(b) and section 6D of the Bengal Finance (Sales Tax) Act, 1941. Claims for deduction based on alleged linkage between sub-vendors and the contractee failed, as there was no privity of contract between them and the contractee.

---

---

Issues: Whether the purchases of plant, equipment and materials from suppliers outside West Bengal, used by the contractor in execution of the works contract, could be excluded from the State levy under section 6D of the Bengal Finance (Sales Tax) Act, 1941, and whether the transfers of property in goods to the contractee under the turnkey works contract were taxable as intra-State deemed sales.

Analysis: The contract placed the contractor under exclusive responsibility for performance of the turnkey project, with sub-contractors having no privity of contract with the contractee. The goods were purchased by the contractor from vendors outside West Bengal under separate contracts, and the inter-State movement was occasioned by those purchase transactions. That movement ended on delivery to the contractor. The later transfer of property in the same goods occurred only when the contractor incorporated them in execution of the works contract with the contractee. Under article 366(29A)(b) of the Constitution of India and section 6D of the Bengal Finance (Sales Tax) Act, 1941, the taxable event was the deemed sale involved in execution of the works contract, not the earlier inter-State purchase by the contractor. The deductions claimed on the footing that the sub-vendors were part of the same contract with the contractee were not accepted, because the sub-vendor contracts were independent and the contractee had no contractual relationship with the sub-vendors.

Conclusion: The levy under section 6D of the Bengal Finance (Sales Tax) Act, 1941 on the deemed sale in execution of the works contract was upheld; the contractor's challenge failed.

Final Conclusion: The applications were dismissed, and the State's power to tax the deemed sale arising from execution of the works contract was sustained, while the contractor's inter-State purchase transactions remained outside the impugned levy.

Ratio Decidendi: In a works contract, inter-State purchases from outside the State are distinct from the taxable deemed sale arising on transfer of property in goods during execution of the contract, and the State may levy tax on the latter where the transfer occurs intra-State and there is no privity of contract between the contractee and the contractor's suppliers.

---