2012 (10) TMI 966 - HC - VAT and Sales Tax

Composite contract for civil electricity and sanitary denied - Held that - In the instant case the entire works contract was a composite and indivisible one and in fact what was agreed there and intended between the parties was not to supply the materials in the course of contract but as and when such material (electrical and sanitary) were embedded in contractual work involved then they became the property of the other party. Hence there would be no question of sale of such material by the contractor to the other. The entire transaction was a clear works contract and did not involve any sale. The petitioner constructed the entire works according to the specification contained in the agreement and in construction thereof received the payment. In both the agreements there was neither a contract to sell the material used in the construction nor does the property passed therein as movable property. After the date of agreement of contract the petitioner had purchased material for amount of Rs. 2, 01, 950 to which he placed list which were exempted from tax. In respect of purchase of Rs. 2, 73, 522 no evidence was placed therefore the material of Rs. 2, 73, 522 was treated as inter-State purchase for using in works contract. Thus vide order dated January 31 1993 tax demand of Rs. 36, 104 was imposed upon the petitioner. W.P. dismissed.

Summary

Issues:

1. Assessment of tax under section 7D of the Act for a composite contract involving civil, electricity, and sanitary works.
2. Interpretation of the nature of the contract - whether it constitutes a works contract or involves the sale of goods.
3. Justification of tax demand imposed on the petitioner based on the assessment of material used in the works contract.

Analysis:

1. The petitioner, a partnership firm, undertook a composite contract for civil, electricity, and sanitary works. The assessing officer imposed a demand under section 7D of the Act, which was contested through appeals up to the High Court. The petitioner argued for the deduction of labor charges and inclusion of all works under the composite scheme. However, the court found the orders of the lower authorities reasonable and sustained the tax demand.

2. The court analyzed the nature of the contract and observed that the works undertaken were indivisible and composite in nature. It was noted that the intention was not to supply materials but to incorporate them into the contractual work, thereby negating any element of sale of goods. The court emphasized that the transaction constituted a works contract, not involving any sale of goods. The court differentiated the present case from those involving the Central Sales Tax Act, highlighting the absence of applicability of certain legal precedents.

3. The court delved into the assessment of material used in the works contract by the petitioner. It was revealed that the petitioner had purchased material for the contract, with some purchases exempted from tax. However, certain inter-State purchases lacked evidence, leading to the imposition of tax on the petitioner. The court upheld the tax demand based on the assessment of material usage and found no grounds to interfere with the orders of the lower authorities.

In conclusion, the High Court dismissed the writ petition, upholding the orders of the lower authorities regarding the tax assessment under section 7D of the Act for the composite contract. The court affirmed the nature of the contract as a works contract, devoid of any sale of goods, and justified the tax demand imposed on the petitioner based on the assessment of material utilized in the works contract.