Taxable sale of construction materials upheld, but interest and penalty failed without an express retrospective mandate.

Supply of materials by CPWD to contractors for construction was treated as a taxable sale under the Rajasthan Sales Tax Act because the Supreme Court had already declared such transfer to be sale under the local sales tax law. The tax demand was therefore upheld. Interest and penalty for delayed payment, however, were not sustained because the Supreme Court ruling did not expressly grant retrospective effect for those consequences, and the assessment order came after that ruling. In the absence of a clear retrospective mandate, the quashing of interest and penalty was maintained.

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Issues: (i) Whether the supply of material by CPWD to contractors for construction work constituted a sale exigible to tax under the Rajasthan Sales Tax Act, 1994. (ii) Whether interest and penalty could be sustained for delayed payment of tax when the assessment order was passed after the Supreme Court decision treating such supply as sale.

Issue (i): Whether the supply of material by CPWD to contractors for construction work constituted a sale exigible to tax under the Rajasthan Sales Tax Act, 1994.

Analysis: The liability to tax had already been settled by the Supreme Court, which held that the transfer of materials supplied for construction amounted to a sale under the local sales tax law. Once that declaration governed the transaction, the tax demand based on such supply could not be disturbed merely because the assessment was made later.

Conclusion: The issue was decided in favour of the Revenue and the tax liability was upheld.

Issue (ii): Whether interest and penalty could be sustained for delayed payment of tax when the assessment order was passed after the Supreme Court decision treating such supply as sale.

Analysis: Interest and penalty depend upon a valid assessment and the time from which tax liability can legally be enforced. The court held that the Supreme Court ruling did not expressly give retrospective effect for levy of interest or penalty, and the assessment order was passed only after that ruling. In the absence of a clear retrospective mandate, the quashing of interest and penalty was justified.

Conclusion: The issue was decided against the Revenue and the quashing of interest and penalty was sustained.

Final Conclusion: The revision failed because the tax demand remained intact, but the orders setting aside interest and penalty were not interfered with.

Ratio Decidendi: A judicial declaration treating a transaction as taxable operates prospectively unless retrospective effect is expressly provided, and interest or penalty for delayed tax cannot be sustained without a legally supportable assessment basis.

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