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Issues: (i) Whether the activity of manufacturing and supplying the assembly-flange constituted a sale within the meaning of section 2(28) of the Bombay Sales Tax Act, 1959. (ii) Whether the transfer of property in goods involved in the execution of the works contract amounted to a sale under section 2(l) of the Maharashtra Sales Tax on the Transfer of Property in Goods involved in the Execution of Works Contracts (Re-enacted) Act, 1989.
Issue (i): Whether the activity of manufacturing and supplying the assembly-flange constituted a sale within the meaning of section 2(28) of the Bombay Sales Tax Act, 1959.
Analysis: The main raw material belonged to the customer and the respondent only converted the steel plates into an assembly-flange under a single and indivisible contract. The respondent did use some of its own material in the process, but the passing of that property was only incidental to the principal job-work. On that footing, the transaction did not answer the statutory definition of sale under the Bombay Sales Tax Act.
Conclusion: The transaction was not a sale under section 2(28) of the Bombay Sales Tax Act, 1959, and the finding was against the Revenue.
Issue (ii): Whether the transfer of property in goods involved in the execution of the works contract amounted to a sale under section 2(l) of the Maharashtra Sales Tax on the Transfer of Property in Goods involved in the Execution of Works Contracts (Re-enacted) Act, 1989.
Analysis: Under the constitutional scheme after the Forty-sixth Amendment, a transfer of property in goods involved in execution of a works contract is treated as a taxable sale for the purposes of the works contract legislation. Since the respondent's own material used in making the inner-flange passed to the customer in the course of execution of the contract, that component could be treated as a sale under the Works Contract Act.
Conclusion: The transfer of property in goods did amount to a sale under the Works Contract Act, and this aspect was in favour of the Revenue.
Final Conclusion: The application for reference failed because the principal question framed under the Bombay Sales Tax Act did not arise, even though the goods component embedded in the works contract was recognized as taxable under the special works contract legislation.
Ratio Decidendi: In a single and indivisible works contract, a transfer of the contractor's own materials incidental to execution does not constitute a sale under the general sales tax definition, though such transfer may be taxable under the special works contract law.
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