Works contract taxation: contractor-supplied bitumen is taxable in principle, but an exemption certificate confines liability to the exemption-fee regime.

Material supplied by a contractor for execution of a works contract is treated as a supply or sale to the awarder and is, in principle, taxable under the Rajasthan Sales Tax Act, 1994; the earlier contrary view was rejected. However, where the entire works contract is covered by an exemption certificate against payment of a fixed exemption fee, the tax liability is replaced by that exemption regime, so ordinary tax under section 5A cannot be levied on the value of the bitumen as a purchase from unregistered dealers. In that setting, the assessing authority is confined to the exemption-fee liability, with no interest or penalty warranted on remand. The assessment was therefore required to be reconsidered on that limited basis.

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Issues: (i) Whether bitumen supplied by a contractor for execution of a road works contract constitutes a taxable supply or sale under the Rajasthan Sales Tax Act, 1994. (ii) Whether, where the entire works contract is covered by an exemption certificate, the assessing authority can levy tax under section 5A of the Rajasthan Sales Tax Act, 1994 or is confined to recovering the exemption fee.

Issue (i): Whether bitumen supplied by a contractor for execution of a road works contract constitutes a taxable supply or sale under the Rajasthan Sales Tax Act, 1994.

Analysis: Material supplied by a contractor for execution of a works contract is treated as supply or sale to the awarder of the contract and is, in principle, exigible to tax under the Rajasthan Sales Tax Act, 1994. The earlier view that such supply was not taxable could not be sustained.

Conclusion: This issue was decided in favour of Revenue.

Issue (ii): Whether, where the entire works contract is covered by an exemption certificate, the assessing authority can levy tax under section 5A of the Rajasthan Sales Tax Act, 1994 or is confined to recovering the exemption fee.

Analysis: The works contract was covered by an exemption certificate against payment of fixed exemption fee, and the tax liability under that contract stood substituted by the exemption regime. In that situation, tax on the value of bitumen could not be levied as if it were a purchase from unregistered dealers; only the exemption fee attributable to the contract could be recovered, and no interest or penalty was warranted in the remand context.

Conclusion: This issue was decided in favour of the assessee.

Final Conclusion: The assessment required reconsideration because the contract was governed by an exemption certificate, so the matter was remitted to the assessing authority for fresh assessment limited to the exemption-fee liability on the value of bitumen supplied.

Ratio Decidendi: Goods supplied by a contractor for execution of a works contract are taxable in principle, but where the whole contract is covered by an exemption certificate, the assessing authority cannot impose ordinary sales tax under section 5A and must confine itself to the exemption-fee regime attached to that contract.

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