Works contract materials are not sales where a lump sum building contract lacks a separate agreement for sale.

A lump sum building contract is not converted into a sale of goods merely because materials are used and incorporated in execution; the governing principle is that "sale of goods" carries the Sale of Goods Act meaning, so materials in a works contract are not taxable as sales absent a distinct agreement. Contract clauses requiring approval of materials or vesting while on site are treated as measures to secure performance, not as separate sale terms. Ancillary definitions of turnover and dealer cannot enlarge the charging provision where the underlying transaction is not a sale. The materials used in the works contract are therefore outside the sales tax levy.

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Issues: (i) Whether the supply of materials used in the execution of a building contract could be treated as a sale and taxed under the impugned sales tax provisions. (ii) Whether the contract for construction was an indivisible works contract or a composite agreement containing a separate agreement for sale of materials. (iii) Whether the definitions of turnover and dealer could sustain the levy even if the contract was one for construction.

Issue (i): Whether the supply of materials used in the execution of a building contract could be treated as a sale and taxed under the impugned sales tax provisions.

Analysis: The governing principle was that the expression "sale of goods" in the legislative entry bears the same meaning as in the Sale of Goods Act, 1930. On that footing, materials incorporated in the performance of a building contract do not become the subject of a sale merely because they are used in construction. The earlier binding decision had already held that there is no sale of such materials as such in a building contract.

Conclusion: The supply of materials in the construction contract was not a sale and could not be taxed as such. The finding was in favour of the assessee.

Issue (ii): Whether the contract for construction was an indivisible works contract or a composite agreement containing a separate agreement for sale of materials.

Analysis: The contract was accepted for a lump sum and the materials were used only in the course of executing the work. The contractual conditions requiring materials to be approved and vest in the Government while on site were intended to secure proper execution, not to create a distinct bargain for sale. Those clauses did not convert the works contract into a contract of sale of materials.

Conclusion: The contract was an indivisible works contract and not a separate agreement for sale of materials. The finding was in favour of the assessee.

Issue (iii): Whether the definitions of turnover and dealer could sustain the levy even if the contract was one for construction.

Analysis: The charging provision taxed sales effected after the Act came into force, and the definitions of turnover and dealer could operate only if the underlying transaction was a sale. Since the materials used in the building contract were not sold, the ancillary definitions could not enlarge the charging provision or validate the levy.

Conclusion: The levy could not be sustained on the basis of the turnover or dealer definitions. The finding was in favour of the assessee.

Final Conclusion: The impugned provisions were held beyond the legislative competence invoked for taxing building materials in works contracts, and prohibition against assessment on that basis followed.

Ratio Decidendi: A lump sum building contract is not converted into a sale of goods by clauses requiring materials to vest in the employer or be approved for quality; absent a distinct agreement for sale, materials used in execution of the works contract are not taxable as sales.

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