2015 (6) TMI 1043 - HC - VAT and Sales Tax

Court upholds tax liability on company supplying goods to contractors for hydroelectric project under Sales Tax Act.

National Hydroelectric Power Corpn. Ltd. Versus State of Sikkim and others

The court upheld the tax liability imposed on a company for the supply of goods to contractors under fixed-price agreements for a hydroelectric power ... Whether the transfer of cement, steel and explosives by the Petitioner to the contractors vide their respective agreements was a ‘sale’ under Section 2(m) of the Act, 1983 - Held that:- for the purpose of instant case, sub-clause (b) and (d) of clause (m) of Section 2 of the Act, 1983 are relevant. Sub-clause (b) talks about the transfer of goods involved in the execution of works contract and sub-clause (d) talks about the transfer of the right to use any goods for any purpose for cash, deferred payment or other valuable consideration. This clearly means that in addition to the main definition of ‘sale’ all such events of transfer, delivery or supply of goods by one person to other person in any one of the above ways under sub-clauses (a) to (f) would be a ‘sale’. Various clauses of agreement shows that the said goods were supplied to the contractors on a fixed rate, and were to be consumed in the work as per approval and then the deductions of their sale price were to be made. Thus, it is clear that the above event of supply of specified goods were clearly covered under sub-clauses (b) and (d) of clause (m) of Section 2 of the Act, 1983 and were ‘sale’ within the meaning of such clauses. As we have already held that, there was transfer of goods involved in the execution of works contract with the transfer of right to use the goods. Thus the taxation authorities have rightly held that the said instances were ‘sale’ within the meaning of Section 2(m) of the Sikkim Sales Tax Act, 1983 and the assessee was liable to pay the sales tax on such transactions. - Decided against the petitioner Issues:Assessment of tax liability on the supply of goods by a company to contractors under an agreement - Determination of whether the supply of goods constitutes a 'sale' under the Sikkim Sales Tax Act, 1983.Analysis:The case involved a company incorporated under the Indian Companies Act, 1956, entering into an agreement with the State Government of Sikkim for a hydroelectric power project. The company supplied cement, steel, and explosives to contractors during the project's construction. The Deputy Commissioner of Commercial Tax Division held that the supply of goods constituted a 'sale' under the Act, imposing a tax liability. An appeal against this assessment was dismissed by the Joint Commissioner, leading to a writ petition challenging the tax liability.The main contention of the company was that the supply of goods was not a 'sale' but a bailment, relying on legal precedent. On the other hand, the State argued that the supply of goods under fixed-price agreements constituted a 'sale' under the Act. The court analyzed the definition of 'sale' under Section 2(m) of the Act, which includes various ways of transferring goods, such as in works contracts or for the right to use goods.Referring to legal precedents, the court highlighted that the transfer of the right to use goods for consideration is deemed a 'sale' under the Act. The agreements between the company and contractors specified the supply of goods at fixed rates for consumption in the project work, leading to deductions from the contractors' bills. The court concluded that these transactions fell within the definition of 'sale' under the Act, upholding the tax liability imposed by the authorities.In contrast to a case involving machinery hire charges, where effective control remained with the owner, in this case, the transfer of goods under works contracts with the right to use them constituted a 'sale.' Therefore, the court dismissed the writ petition, affirming the company's liability to pay sales tax on the transactions. The judgment concluded with the dismissal of the petition without costs.