Works contract processing into a distinct commodity is taxable as sale, and resale deduction was denied under sales tax law.

Steel plates purchased for an EPC pipeline works contract, when processed into steel pipes through job work, were treated as a distinct commercial commodity; the transaction was therefore taxable as a sale of the new product and not a resale of the original plates under the Gujarat Sales Tax Act, 1969. The contractual specifications on quality and source of materials did not create a separate contract for sale of plates, and the resale deduction was unavailable. On the penalty issue, non-payment of tax was not supported by any bona fide, legally sustainable belief, so the penalty under Section 45(6) was sustained.

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Issues: (i) Whether steel plates purchased by the contractor and converted into steel pipes for use in EPC pipeline contracts could be treated as a resale so as to attract deduction and avoid tax under the Gujarat Sales Tax Act, 1969; (ii) Whether penalty under Section 45(6) of the Gujarat Sales Tax Act, 1969 was liable to be imposed.

Issue (i): Whether steel plates purchased by the contractor and converted into steel pipes for use in EPC pipeline contracts could be treated as a resale so as to attract deduction and avoid tax under the Gujarat Sales Tax Act, 1969.

Analysis: The contract was for design, procurement, construction, commissioning, operation and maintenance of pipeline works and not for supply of steel plates. The contractual stipulations regarding quality, thickness and approved sources of material only ensured proper execution of the works and did not create a separate contract for sale of steel plates. After purchase, the plates were processed through job work into steel pipes, resulting in a new and distinct commercial commodity. In such circumstances, the transfer involved in the works contract was of steel pipes, and the transaction amounted to a sale within the statutory definition rather than a resale of the original plates.

Conclusion: The claim of resale deduction failed and the levy of tax on the supply of steel pipes was upheld, in favour of Revenue.

Issue (ii): Whether penalty under Section 45(6) of the Gujarat Sales Tax Act, 1969 was liable to be imposed.

Analysis: The dealer was deemed to have failed to pay the tax as contemplated by the statutory scheme. The record did not show any reliable basis for a bona fide belief that no tax was payable, nor any expert opinion or determination order supporting such a view. The continued non-payment of tax despite the nature of the transaction justified invocation of the penal provision. The absence of mens rea was not established on the facts found by the authorities below.

Conclusion: The penalty under Section 45(6) was rightly sustained, in favour of Revenue.

Final Conclusion: The petition was rejected because the transaction was taxable as a sale of newly manufactured steel pipes in the course of execution of works contracts, and the consequential penalty was also sustained.

Ratio Decidendi: Where goods purchased for a works contract are processed into a distinct commercial commodity before being supplied in execution of the contract, the transaction is taxable as a sale of the new commodity and cannot be treated as a resale of the original goods; penalty may follow where non-payment of tax is not shown to rest on a bona fide, legally supportable belief.

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