Principal-to-principal sale and pre-levy works contract taxation determine trade tax liability under the contract.

A transaction for manufacture and supply of mustard oil was treated as a principal-to-principal sale, not job work, because the manufacturer retained ownership of the raw material and finished goods until sale, could supply excess quantity to others, and bore independent contractual risk; the dealer was therefore not liable as first seller on that basis. The turnover relating to plant and machinery under the contract was also held not taxable under the U.P. Trade Tax Act, since the goods component was separately identifiable and, in any event, the levy on works contracts had not become operative for the relevant assessment year. The Tribunal's deletion of tax was sustained.

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Issues: (i) Whether the supply of mustard oil by the manufacturer to the dealer was a sale on principal-to-principal basis or a job-work arrangement attracting tax as first sale by the dealer; and (ii) whether the turnover relating to supply of plant and machinery under the contract was taxable under the U.P. Trade Tax Act, 1948.

Issue (i): Whether the supply of mustard oil by the manufacturer to the dealer was a sale on principal-to-principal basis or a job-work arrangement attracting tax as first sale by the dealer.

Analysis: The agreement provided for manufacture and supply of mustard oil by the firm to the dealer on principal-to-principal terms. The manufacturer retained ownership over the raw material and the oil produced until sale, was free to supply excess quantity to others, and bore contractual liability for non-performance. The fixing of price by reference to cost components and production specifications did not convert the transaction into manufacture on behalf of the dealer.

Conclusion: The supply was a sale on principal-to-principal basis and not a job-work transaction; the dealer was not liable as first seller on this footing.

Issue (ii): Whether the turnover relating to supply of plant and machinery under the contract was taxable under the U.P. Trade Tax Act, 1948.

Analysis: The contract was treated as divisible in respect of supply of goods and services, and the goods component was made up of items purchased within the State or supplied by inter-State sales, which were not taxable under the Act. Even on the assumption of a composite works contract, the relevant provision making works contracts taxable had been brought into force only from 1 May 1987, after the assessment year in question. The entire contract value could not be taxed as sale of plant and machinery.

Conclusion: The turnover relating to the plant and machinery contract was not taxable for the assessment year concerned.

Final Conclusion: The revisions failed, and the Tribunal's order deleting the tax was sustained on both issues.

Ratio Decidendi: A transaction remains a principal-to-principal sale where the manufacturer retains ownership and contractual incidents of an independent seller, and a works contract cannot be taxed for a period before the statutory levy on such contracts becomes operative.

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