Works contract supplies treated as taxable sale where government materials are appropriated in execution and value is deducted from the bill.

Supply of iron, steel and cement by the Public Works Department to a contractor under Clause 10 was treated as a sale for tax purposes because the materials remained Government property until used in the work, their value was deducted from the final bill, and property passed on consumption or appropriation in execution of the contract. The charging provision under the Madhya Pradesh entry tax law applied to goods entering a local area for consumption, use or sale, and the statutory presumption of entry was also noted. On that footing, the transaction was not a mere custody arrangement but a taxable sale, attracting entry tax.

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Issues: Whether the supply of iron, steel and cement by the Public Works Department to the contractor under Clause 10 of the contract, with the price adjusted in the final bill, constituted a sale so as to attract entry tax on the entry of goods into the local area.

Analysis: The charging provision under Section 3 of the Madhya Pradesh Sthaniya Kshetra Me Mal Ke Pravesh Par Kar Adhiniyam, 1976 levied entry tax on specified goods entering the local area for consumption, use or sale, while Section 6(c) raised a presumption of entry where goods were purchased from an unregistered dealer. The decisive question was whether the PWD's supply of materials amounted to a sale within the meaning of the sales tax law. Clause 10 showed that the materials remained Government property until used in the work, were supplied for the contractor's use in performance of the contract, and their value was deducted from the contractor's bill. On that footing, the property in the goods passed on consumption and appropriation in the execution of the work, and the transaction was not a mere custody arrangement but a sale of the materials supplied for consideration.

Conclusion: The supply of materials constituted a sale and the contractor was liable to entry tax.

Ratio Decidendi: Where goods are supplied by the Government to a contractor for use in execution of a works contract, with their value deducted from the contract price and the parties' arrangement showing transfer of property on use or appropriation, the transaction is a taxable sale and not a mere incidental passing of property.

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