Composite works contract with material supply sustained as taxable despite later contrary correspondence

A railway ballast contract was treated as a composite contract because the contractor had to procure and supply materials as part of performance, not merely execute labour. The court relied on the original agreement, incorporated tender conditions, and surrounding records showing supply obligations and actual purchase and delivery of jelly to the railway. A later railway letter could not override the contractual terms. On that footing, the levy of tax and the consequential penalty under section 12(3) were sustained, and the challenge failed.

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Issues: Whether the contract for ballast-related railway work was a pure works contract or a composite contract involving supply of materials, and whether tax and penalty under section 12(3) could be sustained.

Analysis: The original agreement and its incorporated tender conditions showed that the contractor had to obtain ballast, make his own arrangements for procurement, and comply with specifications relating to supply. The description of work also covered removal of old ballast and filling with fresh ballast, which necessarily involved supply of materials. The later railway letter relied on by the assessee was held to be incapable of overriding the contractual terms and the surrounding records. The factual findings that jelly had been purchased and supplied to the railway were accepted as well founded.

Conclusion: The contract involved supply of materials along with execution of work. The levy of tax and the consequential penalty were sustained, and the assessee's challenge failed.

Final Conclusion: The appeals were rejected because the transaction was not a mere labour contract but a taxable composite contract with supply of materials, and no ground for interference was made out.

Ratio Decidendi: Where the contract terms and surrounding records show that the contractor was obliged to procure and supply materials for performance of the work, the transaction is taxable as a composite contract and cannot be treated as a pure works contract merely on the basis of a later contrary letter.

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