Composite works contract analysis: contractual substance prevails, and outside-State goods used in execution qualified for tax deduction.

A composite contract for designing, manufacturing, inspection, testing, supply, installation and commissioning was treated as an indivisible works contract because its substance, read as a whole, governed its tax character rather than the use of the word "supply." Goods brought from outside Uttar Pradesh and consumed in executing that works contract were held to qualify for the deduction contemplated by the relevant trade tax provision. The applicable principle is that, for tax purposes, the true nature of the agreement must be determined from the integrated transaction, and the statutory benefit for such works contracts cannot be denied merely on the wording used in the contract.

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Issues: Whether the contract for supply, installation and commissioning was a composite indivisible works contract, and whether the goods brought from outside the State and used in execution of that contract were entitled to deduction under the relevant trade tax provision.

Analysis: The contract was read as a whole and its substance showed an integrated arrangement for designing, manufacturing, inspection, testing, supply, installation and commissioning. The use of the word supply did not alter the essential character of the agreement, since supply of machinery was only an integral part of the overall works contract. The goods were brought from outside the State of Uttar Pradesh and consumed in execution of the works, which attracted the benefit contemplated by the statutory provision relied upon by the revisionist.

Conclusion: The contract was a composite indivisible works contract, and the assessee was entitled to the benefit of deduction under Section 3F(2)(b) of the U.P. Trade Tax Act.

Ratio Decidendi: For tax purposes, the true nature of a contract must be determined from the agreement as a whole, and where goods are imported from outside the State and consumed in execution of an indivisible works contract, the statutory deduction or exemption applicable to such works contracts cannot be denied merely because the agreement uses the word supply.

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