Works contract supplies and royalty recovery treated as taxable sales under the contractual arrangement examined.

Goods supplied under a works-related contract at agreed rates, with their value adjusted in running bills and unused stock required to be returned, were treated as a transfer of property in goods for consideration and therefore a taxable sale rather than a merely incidental supply for execution of work. Applying the substance-over-form test and the parties' intention, the court held the cement and steel transactions fell within the statutory definition of sale. Royalty recovered from the contractor for use of river bed material was also treated as part of the taxable turnover on the factual arrangement examined, and the challenge to that component failed.

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Issues: (i) Whether cement and steel issued by the assessee to contractors under the project contracts constituted a sale under section 2(h) of the U.P. Trade Tax Act, 1948. (ii) Whether recovery of royalty from the contractor for use of river bed material in executing the work was liable to sales tax.

Issue (i): Whether cement and steel issued by the assessee to contractors under the project contracts constituted a sale under section 2(h) of the U.P. Trade Tax Act, 1948.

Analysis: The contractual terms showed that the materials were supplied at specified rates, the value was adjusted or deducted in the running bills, and unused materials had to be returned. The arrangement was not merely a supply of materials incidental to work, but involved transfer of property in goods for valuable consideration. Applying the settled test that the substance of the transaction and the intention of the parties govern the character of the contract, the court held that the transaction satisfied the definition of sale.

Conclusion: The issue was decided against the assessee and in favour of the Revenue.

Issue (ii): Whether recovery of royalty from the contractor for use of river bed material in executing the work was liable to sales tax.

Analysis: The court found no independent basis to interfere with the finding that the royalty component formed part of the taxable turnover in the context of the contractual and accounting arrangement examined by the authorities. The challenge to taxability on this component did not displace the concurrent factual conclusion reached below.

Conclusion: The issue was decided against the assessee and in favour of the Revenue.

Final Conclusion: The revisions concerning the material-supply transactions failed, while the connected revision relating to the earlier assessment was allowed, resulting in a mixed outcome overall.

Ratio Decidendi: Where goods are supplied under a works-related contract at agreed rates and their value is adjusted against the contractor's bills, with the property in the goods passing on consumption, the transaction constitutes a taxable sale rather than a mere incidental supply for execution of work.

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