Deemed sale in works contracts fails where State-supplied materials are merely used, and royalty deduction does not create a taxable transfer.

In a works contract where cement, steel, sand and gitti were supplied or made available by the awarder or State and the contractor merely used them in execution, there was no transfer of property in goods from the contractor to the awarder, which is necessary to constitute a sale under the Rajasthan Sales Tax Act. The fact that 2% royalty was deducted from the contract amount did not create any leasehold right in the contractor or convert the use of State-owned minerals into a sale by the contractor. On that basis, the use of the materials was not a deemed sale and tax could not be levied.

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Issues: Whether, in a works contract where cement, steel, sand and gitti were supplied or made available by the awarder or State and the contractor merely used them in execution of the work, the use of such materials could be treated as a deemed sale liable to tax under the Rajasthan Sales Tax Act, and whether deduction of 2% towards royalty from the contract amount altered that position.

Analysis: The materials used in execution of the contract were found to have been supplied by the awarder itself, and the mines from which the other materials were lifted belonged to the State. In such circumstances, there was no transfer of property in the goods from the contractor to the awarder, which is essential to constitute a sale. The mere fact that royalty was recovered by deduction from the contract consideration did not create any leasehold right in the contractor or convert the removal and use of the minerals into a sale by the contractor.

Conclusion: The use of the materials did not amount to a deemed sale, and tax could not be levied on that basis. The revisions were therefore dismissed, effectively in favour of the assessee.

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