Section 9(1) CST Act inapplicable where goods never entered U.P.; no subsequent sale arose from subcontracted execution.

Section 9(1) of the Central Sales Tax Act was held inapplicable where goods used in execution of the contract never entered U.P., because the charging provision operates only when movement of goods commences in the relevant State. The proviso to Section 9(1) was also held not to apply, as receipt of consideration and issuance of Form-C by the principal contractor did not create a subsequent sale where registered sub-contractors had themselves effected the taxable transfer of property in goods. The demand was therefore unsustainable because the transaction had already been taxed in the hands of the sub-contractors and no taxable subsequent sale by the principal contractor was shown.

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Issues: (i) Whether Section 9(1) of the Central Sales Tax Act, 1956 applied when the goods used in execution of the contract never entered the State of U.P. (ii) Whether the proviso to Section 9(1) was attracted on the basis that the principal contractor received the entire consideration and issued Form-C, so as to treat the transaction as a subsequent sale.

Issue (i): Whether Section 9(1) of the Central Sales Tax Act, 1956 applied when the goods used in execution of the contract never entered the State of U.P.

Analysis: The charging part of Section 9(1) operates where the movement of goods commences in the relevant State. The undisputed facts showed that the goods used for execution of the work never entered the State of U.P. and no sale or purchase of the goods took place within that State. In the absence of any movement of goods commencing from U.P., the substantive provision of Section 9(1) could not be invoked.

Conclusion: Section 9(1) was not applicable on its substantive part.

Issue (ii): Whether the proviso to Section 9(1) was attracted on the basis that the principal contractor received the entire consideration and issued Form-C, so as to treat the transaction as a subsequent sale.

Analysis: The proviso to Section 9(1) applies only where there is a subsequent sale. The Court held that no such subsequent transfer of property in goods was made by the principal contractor, since the purchase and execution were carried out by the sub-contractors, who were separate registered dealers and had already suffered tax on the relevant transactions. Relying on the principle that in subcontracted works the transfer of property in goods occurs by accretion and is not re-transferred by the principal contractor, the Court held that receipt of consideration by the principal contractor and issuance of Form-C did not create a subsequent sale.

Conclusion: The proviso to Section 9(1) was not attracted and no subsequent sale arose in the hands of the principal contractor.

Final Conclusion: The tax demand could not be sustained against the respondent-assessee, as the transaction had already been taxed in the hands of the sub-contractors and the Department failed to establish a taxable subsequent sale by the principal contractor.

Ratio Decidendi: Where execution of the contract is entrusted to registered sub-contractors who themselves effect the taxable transfer of property in goods, the principal contractor does not make a subsequent sale merely because it receives the contract consideration or issues Form-C.

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