TaxTMI 
TaxTMI 
1988 (10) TMI 106
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....adhya Pradesh Sthaniya Kshetra Me Mal Ke Pravesh Par Kar Adhiniyam, 1976 (hereinafter referred to as "the Entry Tax Act "). The reference became necessary because of the conflict in two Division Bench decisions of this Court in Commissioner of Sales Tax v. Hindustan Steel Ltd. [1971] 27 STC 478 and Commissioner of Sales Tax v. Mohammad Zahoor [1975] 36 STC 414 and also because of the Supreme Court decision in Brij Bhushan Lal Parduman Kumar v. Commissioner of Income-tax [1978] 115 ITR 524. 2.. The petitioner is a building contractor at Rajnandgaon in M.P. and is registered as a dealer under the Madhya Pradesh General Sales Tax Act. The petitioner's tender for construction of foodgrains godown and ancillary buildings at Rajnandgaon was accepted by the Central Public Works Department. It was an item rate tender. In the tender so submitted, it included the price of materials to be used for the construction including cost of iron, steel and cement. However, the Public Works Department agreed to supply from its stores iron, steel and cement for the construction work and to deduct the price of the material so consumed in the construction from the final bill of the petitioner. Clause (....
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....led the writ petition challenging the assessment of purchase tax under section 7(1) of the Madhya Pradesh General Sales Tax Act and the assessment of entry tax under section 3(1) of the Entry Tax Act saying that the entry of the materials so supplied by the PWD was effected by it and not by the petitioner and since there was no sale of those materials but which were used for construction of the buildings of the PWD, there was no sale as such and so no entry tax can be levied. The petition is being opposed by the respondents saying that since the petitioner purchased iron, steel and cement from the department and not from the market as per agreement and the prices of which have been deducted from its final bill, the entry of the materials can be presumed to have been made at the instance of the petitioner who has ultimately used the materials for construction work and since the materials were purchased from unregistered dealer, i.e., PWD, the petitioner is liable to payment of purchase tax and entry tax. 3.. Section 3 of the Entry Tax Act is the charging section under which entry tax shall be levied on the entry in the course of business of a dealer of goods in local area specifi....
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....ildings of the PWD because the materials at all times remained the property of the department. On a careful reading of clause (10), it appears that the clause was inserted in order that there is no pilferage or misuse of the materials so supplied at control price as the market price was higher. Therefore, provision was made that the materials so supplied at the rates specified in the Schedule shall remain the absolute property of the PWD and shall not be removed on any account from the site of work and shall at all times be open for inspection by the Engineer-in-Charge, which means that the petitioner was bound to use those materials only for construction work and for no other purpose and the materials so supplied was to remain the property of the department till it was actually consumed in the construction work. Once the material was so consumed in the construction work, the property passed to the contractor and there was sale, so also there will be sale of unused material if they are not taken back by the department. Once the material has been consumed in the construction work, there can be no question of any inspection of the material by the Engineer-in-Charge, implying thereby ....
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.... determination of the contract shall be returned to the Engineer-in-Charge's store if by a notice in writing under his hand he shall so require, but the contractor shall not be entitled to return any materials so supplied to him as aforesaid being unused by him or for any wastage in or damage to any such materials.' On the question whether the assessee was liable to purchase tax under section 7(1) of the Act on the price of iron and cement supplied by the department: Held, that under the facts and circumstances of the case, the iron and cement supplied by Public Works Department to the assessee for use in the works executed by the assessee for the department was a sale and was liable to purchase tax under section 7(1) of the Act." The Supreme Court also in Hindustan Steel Ltd. v. State of Orissa [1970] 25 STC 211 held that where the company supplied to the contractors for use in construction bricks, coal, cement, steel, etc., for a consideration, the question was whether the supply of building materials amounted to "sale" and the company was a "dealer" for the purposes of sales tax under the Orissa Sales Tax Act, 1947. It was held (i) that the supply constituted "sale" and ....
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....on of the Supreme Court on which strong reliance is placed by the learned counsel is Brij Bhushan Lal Parduman Kumar v. Commissioner of Income-tax [1978] 115 ITR 524 which is clearly distinguishable wherein the Supreme Court held that since no element of profit was involved in the turnover represented by the cost of the materials supplied by the Government to the appellant, the income or profits derived by the appellant from such contracts had to be determined on the basis of the value of the contracts represented by the cash payments received by the appellant from the Government exclusive of the cost of the materials received for being used, fixed or incorporated in the works. In that case, the Supreme Court was considering whether there was any profit made by the contractor while taking supply of certain materials from the department for the construction work and held that there being no profit element, the value of the materials used for execution work cannot be taken into account in computation of profit. The Supreme Court was not required to consider whether the supplies amounted to sale or not. There may be sale without profit. Therefore, this decision has no direct bearing o....
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....tores the said iron, steel and cement for the construction work and to deduct the prices of materials so supplied and consumed in the construction from the final bill of the appellant. Clause (10) of the Contract is relevant and was as follows: "Clause 10. If the specification or Schedule of terms provides for the use of any special description of materials to be supplied from Engineer-in-charge's Stores, or if it is required that the Contractor shall use certain stores to be provided by the Engineer-in-charge as shown in the Schedule of materials hereto annexed, the contractor shall be bound to procure and shall be supplied such material and stores as are from time to time required to be used by him for the purposes of the contract only, and the value of the full quantity of materials and stores to supply at the rates specified in the said Schedule of materials may be set off or deducted from any sums then due or thereafter to become due to the contractor under the contract or otherwise, or against or from the Security deposit, or the proceeds or sale thereof if the same is held in Government securities, the same or a sufficient portion thereof being in this case sold for the p....
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....cement by the PWD and it had purchased other materials from the market. The prices of Iron, steel and cement supplied to the appellant for the work were deducted from its final bill. 4. On 22nd September, 1982 the appellant was assessed by the respondent for entry tax for the period 7th June, 1979 to 31st March, 1980 to a tax of Rs. 11,292/- including penalty of Rs. 2,000/- and by an order dated 5th October, 1982 the appellant was assessed for the period from 1st April, 1980 to 31st March, 1981 for the entry tax of Rs. 23.393/- including penalty of Rs. 4.500/-. The appellant was a registered dealer under the Madhya Pradesh General Sales Tax Act and had been assessed to purchase tax under Section 7(1) of the Act and was as such liable for payment of entry tax for iron, steel and cement, the entry for the same having been effected at the instance of die appellant because it had ultimately used the materials for the construction work. 5. The appellant filed revisions before the Deputy Commissioner of Sales Tax who affirmed the assessment orders. The appellant then filed a writ petition challenging the assessment of purchase tax under Section 7(1) of the Madhya Pradesh Gene....
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....r the Act. The question, therefore, was whether there was sale of iron, steel and cement by the PWD while supplying those materials for the construction work undertaken by the appellant. If supply of these materials is sale within the meaning of Section 2 (n) of the M.P. General Sales Tax Act then the appellant would be liable for payment of entry tax as it has been assessed. The question, therefore, is whether there was sale and whether the property in the goods in question passed to the appellant or continued to remain with the PWD although the PWD had in the final bill debited the prices of the goods so supplied to the appellant under clause (10) of the contract. The Full Bench found that there was sale and as a result of that the duty was leviable. 7. The question, therefore, is whether there was sale of goods in view of the contract between the parties whereunder the custody and control of the goods remained with the PWD and goods were only used in the construction under the contract. This question has been considered by this Court in The Government of Andhra Pradesh v . Guntur Tobaccos Ltd. (16 STC 240). There, the majority of the judges in a Bench of three learned judges,....
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..... The burden in such a case lay upon the taxing authorities to show that there was a taxable sale. and that burden was not discharged by merely showing that property in the goods which belonged to the party performing service or executing the contract stood transferred to the other party. In that case, the assessee-company was a dealer carrying on the business of redrying in its factory raw tobacco entrusted to it by its customers. The assesee redried the tobacco, packed it in packing materials purchased from the market and detivered it to the customers. For redrying each bale of tobacco the assessee had charged the customers a certain sum but there was not separate charge for the value of the packing materials used. The assessee was assessed to sales tax under the Madras General Sales Tax Act, 1939, on the value of the packing materials on the ground that there was a sale of the packing materials. The High Court found that the packing of the redried tobacco and its storage for the requisite period was an integral part of the redrying process and held that there was no sale of packing materials. On appeal in that case, this Court by majority held that the finding recorded by the Hi....
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....k was done departmentally and the rest through contractors. The company supplied to the contractors for use in construction bricks, coal, cement, steel etc. for a consideration which in addition to the cost price of the appellant company included , some additional amounts which were charged by the appellant. The question was whether the supply of building materials amounted to "sale" and the appellant-company was a dealer for the purposes of sales tax under the Orissa Sales Tax Act, 1947. It was held that the supply constituted "sale". It was further held that, however, the company had charged a fixed percentage above its cost price only for storage, insurance and rental or other incidental charges, it could not be said that the company was carrying on business of supplying materials and it would not be a "dealer". In other words, it is clearly held by this Court in the Hindustan Steel Ltd. case (Supra) that where company supplies to the contractor for use in its construction coal, steel and cement etc-for a consideration, it amounts to a "sale" and the company becomes a "dealer" for the purpose of sales tax. The provisions were similar to that of the present Act. In Brij Bhu....
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....f the entire contract would be the value minus the cost of such materials so supplied. Since no element of profit was Involved in the turnover represented by the cost of the materials supplied by the Government to the appellant, the income or profits derived by the appellant from such contracts had to be determined on the basis of the value of the contracts represented by the cash payments received by the appellant from the Government exclusive of the cost of the materials received for being used, fixed or incorporated in the works. There the question was whether there was profit taxable to income-tax on the sale of the materials. There was none and it was so held. 9. This Court again examined the question in the context of a sale of meals and amenities by a hotelier in the case of The State of Himachal Pradesh & Others v. Associated Hotels of India Ltd. (29 STC 474), where this Court reiterated that mere passing of property in an article or commodity during the course of the performance of a transaction did not render it a transaction of sale. For, even in a contract purely of work or service, it is possible that articles may have to be used by the person executing the work and....