Works contract tax reimbursement upheld where contract expressly covered sales tax on completed work despite general bid conditions.

A works contract is divisible, after the Forty-sixth Amendment, into goods and labour/services, so tax can be levied only on the value of goods involved in execution; the contractor was therefore entitled to reimbursement of sales tax charged on the taxable turnover of the works contract under the express contractual clause. Clauses requiring bid prices to include duties, taxes and levies, and treating quoted rates as inclusive of taxes on materials, did not defeat that promise because they applied to taxes on materials procured for performance, not to reimbursement of sales tax paid on completed items of work after proof of assessment and payment. The SC accordingly rejected the appeal and upheld reimbursement.

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Issues: (i) Whether sales tax levied on the taxable turnover of works contracts executed by the contractor was reimbursable under the contract; (ii) Whether the stipulations in the bid documents and general conditions, read together, barred such reimbursement.

Issue (i): Whether sales tax levied on the taxable turnover of works contracts executed by the contractor was reimbursable under the contract.

Analysis: After the Forty-sixth Amendment, a works contract is divisible by legal fiction into the supply of goods and the supply of labour and services, and the State can levy tax only on the value of goods involved in execution. The amended sales tax law of the State also treated transfer of property in goods involved in works contracts as a sale and confined tax to taxable turnover after deduction of labour and service charges. The contractual clause provided for reimbursement of sales tax on completed items of work after payment and assessment, and the deduction from running bills was consistent with that stipulation.

Conclusion: The contractor was entitled to reimbursement of the sales tax levied on the taxable turnover of the works contracts.

Issue (ii): Whether the stipulations in the bid documents and general conditions, read together, barred such reimbursement.

Analysis: The clauses requiring inclusion of duties, taxes and levies in the bid price, and treating quoted rates as inclusive of taxes on materials, operated only to prevent separate claims for taxes paid on materials procured for performance of the contract. They did not override the separate contractual promise to reimburse sales tax levied on completed items of work after proof of payment. Reading those clauses as excluding reimbursement would render the reimbursement clause otiose and contrary to the contract as a whole.

Conclusion: The contractual stipulations did not bar reimbursement of the sales tax levied on the works-contract turnover.

Final Conclusion: The appeal was rejected and the High Court's direction for reimbursement under the contract remained undisturbed.

Ratio Decidendi: Where a works contract is taxable only on the value of goods involved in execution, a contractual clause promising reimbursement of sales tax paid on completed items of work must be given effect according to its plain terms and cannot be nullified by general bid conditions requiring taxes on materials to be included in the quoted price.

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