Sale transaction characterization prevails where contract terms show manufacture and delivery for consideration, not a works contract.

The transaction was treated as a sale rather than a works contract because the agreement was structured as a purchase order, the parties were described as purchaser and manufacturer/vendor, and the terms covered price, delivery, warranty, indemnity, insurance and taxes on the full value of the vessels. Most materials were to be supplied by the manufacturer, with only limited free-issue material supplied by the purchaser, indicating that property in the materials and finished vessels remained with the manufacturer until delivery for consideration. Taxability of the free-supplied materials was left open for the assessing authority, with liberty to seek refund if excess tax had been realised.

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Issues: Whether the transaction between the parties was a sale transaction or a works contract liable to sales tax under the West Bengal Sales Tax Act, 1994.

Analysis: The nature of the transaction had to be determined from the terms of the agreement. The agreement described the arrangement as a purchase order and referred to the petitioner as purchaser and the other party as manufacturer and vendor. It provided for price, advance payment, delivery terms, warranty, indemnity, insurance, excise duty and central sales tax on the full value of the vessels. Most of the materials were to be supplied by the manufacturer, while only limited free-issue material was supplied by the petitioner. These features showed that the property in the materials and in the finished vessels remained with the manufacturer until delivery against the agreed consideration. The transaction therefore had the characteristics of a sale rather than a works contract. The issue of whether sales tax was chargeable on the value of the free materials supplied by the petitioner was left open for determination by the assessing authority, with liberty granted to seek refund if excess tax had been realised.

Conclusion: The disputed transaction was held to be a sale transaction and not a works contract. The petitioner was given liberty to raise the question of taxability of the free-supplied materials before the assessing authority and, if excess tax was found to have been realised, to seek refund under section 37(3) of the West Bengal Sales Tax Act, 1994.

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