2007 (9) TMI 549 - HC - VAT and Sales Tax

Court rules supply of building materials by semi-Government department to contractor as sale liable to sales tax

Executive Engineer, Construction Division-III, UP. Avas Evam Vikas Parishad, Agra Versus Commissioner of Trade Tax

The High Court examined a revision against the Trade Tax Tribunal's order regarding the supply of building materials by a semi-Government department to a ... Sales tax levied on sale of cement and iron - Held that:- The very opening of Schedule C which contains conditions provides that following materials (cement, mild steel, G.I. pipes) shall be supplied to the contractor at the specified rate and the cost of these materials shall be recovered from the contractor's bills. In view of clear stipulation in-between the dealer and its contractor with regard to the supply of materials and recovery of cost of the materials from the contractor's bill there is a sale in the hands of the dealer. The argument of the learned counsel for the applicant that under condition No. 3 the contractor is obliged to return unused materials in good condition and is not entitled to take away unused materials and will distinguish the ratio of the case of N.M. Goel & Co. [1988 (10) TMI 106 - SUPREME COURT OF INDIA ]is misconceived. The condition No. 3 further stipulates that on failure of return of unused goods the cost of sale shall be deducted from the contractor's bill at double the rate for cement and one-and-half times that for steel and allied goods, runs counter to the argument of learned counsel for the applicant. Thus such contract amounts to sale of materials supplied by the contractee to the contractor. Revision dismissed. Issues:1. Whether the supply of building materials by a semi-Government department to a contractor constitutes a sale liable to sales tax.2. Interpretation of contract terms regarding the supply of materials and recovery of costs.3. Applicability of previous judgments on similar cases.Analysis:The High Court examined a revision against the Trade Tax Tribunal's order concerning the assessment year 1985-86. The dispute centered on whether the supply of cement and iron by a semi-Government department to a contractor for construction constituted a sale liable to sales tax. The department argued that there was no transfer of property to the contractor, but all lower authorities disagreed. The Court reviewed the contract terms between the department and the contractor, emphasizing condition No. 3, which outlined the recovery of material costs from the contractor's bill. The Court considered previous judgments, including one involving Public Works Department materials, and noted that the property in goods passed to the contractor based on the contract terms, satisfying the definition of 'sale' under the Sales Tax Act.The Court addressed the department's argument that the contractor was obligated to return unused materials under condition No. 3, distinguishing it from previous judgments. The Court highlighted that the clear stipulation in the contract regarding material supply and cost recovery indicated a sale by the department to the contractor. Referring to a specific case, the Court concluded that the contract in question amounted to the sale of materials supplied by the department to the contractor. Despite the department's contentions, the Court found no merit in the revision and dismissed it, with no order as to costs.