Cost-recovery supplies and machinery hire to contractors can be taxable as deemed sales when right to use goods is transferred.

Materials supplied to contractors on a cost-recovery basis were treated as taxable turnover because the authorities found the goods were issued for use in execution of work and the assessee produced no material to exclude tax-free or first-point tax-paid goods. Hire charges for machinery supplied to contractors were also held taxable as deemed sales, since the extended definition of sale covered transfer of the right to use goods on the facts found, and the assessee's claim of retained control was rejected. In revision, the High Court found no infirmity in the Tribunal's factual findings and declined interference.

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Issues: (i) Whether the turnover relating to supply of materials to contractors on cost recovery basis was liable to be included in taxable turnover. (ii) Whether hire charges received for machinery supplied to contractors amounted to deemed sale by transfer of right to use goods. (iii) Whether the Tribunal's findings on these matters called for interference in revision.

Issue (i): Whether the turnover relating to supply of materials to contractors on cost recovery basis was liable to be included in taxable turnover.

Analysis: The assessee's case that the materials supplied to contractors were not sold was rejected because the authorities found that the costs were recovered from the contractors and the materials were issued for use in execution of work. The claim that tax-free goods and first-point tax-paid goods ought to be excluded was not supported by material on record.

Conclusion: The turnover was rightly treated as taxable and the issue was decided against the assessee.

Issue (ii): Whether hire charges received for machinery supplied to contractors amounted to deemed sale by transfer of right to use goods.

Analysis: The Tribunal applied the extended definition of sale under section 2(g)(iv) of the Orissa Sales Tax Act, 1947 and held that hiring of machinery to contractors for consideration amounted to transfer of the right to use goods. The contention that the assessee retained effective control was not accepted on the facts found.

Conclusion: The hire charges were held taxable as deemed sales and the issue was decided against the assessee.

Issue (iii): Whether the Tribunal's findings on these matters called for interference in revision.

Analysis: The revision court treated the controversy as arising mainly from findings of fact and found no infirmity in the Tribunal's conclusions on the disputed turnovers and hire charges.

Conclusion: No interference was warranted and the issue was decided against the assessee.

Final Conclusion: The revisions failed, and the departmental tax demands sustained by the authorities below were upheld.

Ratio Decidendi: Where materials are supplied to contractors for consideration on a cost-recovery basis, or machinery is hired to contractors for consideration, the transaction may constitute a taxable sale under the extended definition if the factual findings show a transfer of the right to use goods and no material is produced to displace those findings.

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