Contract substance determines tax treatment where material supply rests with the contractee and work is mainly labour-based

The true nature of the contract governed taxability of the cement tiles supplied under it: where the contractee provided the essential materials and the assessee's role was confined mainly to labour and manufacture, the transaction was job work rather than a sale of goods. The Tribunal treated the earlier assessment year under the same contract as final and distinguished cases where the contractor supplied raw material. Non-production of Form 3-D was not treated as fatal. On that basis, the transaction was not exigible to tax, and the Tribunal's view exempting the dealer from tax was left undisturbed.

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Issues: Whether the assessee's supply of cement tiles under the contract constituted a sale of goods liable to tax or a job work not exigible to tax.

Analysis: The assessment depended on the true nature of the contract. The governing principle is that the character of the transaction must be gathered from the terms of the contract and the intention of the parties, namely whether the essence of the bargain is transfer of chattels as chattels or merely supply of labour and work. The Tribunal found, as a matter of fact, that the contractee department supplied the essential materials, including land and electricity, and that the assessee mainly rendered labour in manufacturing the tiles. The earlier assessment year arising from the same contract had already been treated as job work, and that view had attained finality. The non-production of Form 3-D was not treated as fatal, and the authorities' reliance on precedents dealing with contracts where the contractor supplied the raw material was distinguished on facts.

Conclusion: The transaction was held to be job work and not a sale of goods, so no tax liability arose on the amount in dispute.

Final Conclusion: The revision was dismissed, and the Tribunal's view exempting the dealer from tax was left undisturbed.

Ratio Decidendi: Where the contractee supplies the essential materials and the contractor's role is confined to labour or manufacture, the transaction is a job work and not a taxable sale of goods; the true nature of the contract must be determined from its substance and the allocation of responsibilities under it.

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