Works contract material supplies treated as sale where cost is recovered through bills and property passes on use

Construction materials supplied by a contractee to a contractor under a works contract, with their cost recovered from running bills, were treated as a taxable sale because property in the goods passed on use or consumption in the work and the bill adjustment operated as consideration. The returnability of unused material did not change the character of the transaction, since the contract also provided for monetary deduction at enhanced rates if the material was not returned. The Allahabad HC therefore sustained the trade tax assessment on the material supplies.

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Issues: Whether supply of cement, iron and other construction materials by the contractee to the contractor, with the cost recoverable from the contractor's bills and unused material subject to return or deduction, constituted a sale liable to trade tax.

Analysis: The contract expressly provided that specified materials would be issued to the contractor and their cost recovered from the contractor's bills. The arrangement showed that property in the goods passed to the contractor on use or consumption in the work, and the recovery mechanism supplied the consideration. The obligation to return unused material did not negate the transfer, because the contract also contemplated monetary deduction at enhanced rates on failure to return such goods. The reasoning was consistent with the principle that in a works contract, supply of materials coupled with transfer of property and consideration through bill adjustment amounts to sale.

Conclusion: The supply of materials in the present contract amounted to sale and was rightly subjected to trade tax, against the assessee.

Final Conclusion: The revision failed and the assessment treating the material supplies as taxable sales was sustained.

Ratio Decidendi: Where construction materials are supplied to a contractor under a contract providing for recovery of their cost from running bills, and property in the materials passes on use or consumption, the transaction constitutes a sale for tax purposes even if unused material is returnable.

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