TMI Blog1988 (10) TMI 106X X X X Extracts X X X X X X X X Extracts X X X X ..... goods are within State and in the case of unascertained or future goods, at the time of their appropriation to the contract of sale or purchase by the seller or by the purchaser, whether the assent of the other party is prior or subsequent to such appropriation of contract of sale. - Civil Appeal No. 340 of 1988, - - - Dated:- 28-10-1988 - SABYASACHI MUKHARJI AND JAGANNATHA SHETTY K. JJ. T.C. Sharma, Advocate, for the respondents. R.K. Virmani, Advocate, for the appellant. -------------------------------------------------- [The judgment of the Full Bench of the Madhya Pradesh High Court consisting C.P. Sen, B.C. Verma and K.K. Adhikari, JJ., in Misc. Petition No. 1670 of 1984 dated 8th December, 1986, runs as follows: ] The judgment of the Court was delivered by C.P. SEN, J. -This writ petition has been referred to the Full Bench by the Division Bench for decision of the question raised in the petition, i.e., whether the petitioner can be said to have effected entry of the goods in the local area and thereby made it liable for payment of entry tax under section 3 of the Madhya Pradesh Sthaniya Kshetra Me Mal Ke Pravesh Par Kar Adhiniyam, 1976 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 order dated 5th October, 1982 for the period 1st April, 1980 to 31st March, 1981 he assessed the petitioner to entry tax of Rs. 23,393 including penalty of Rs. 4,500 because the petitioner in the first period was supplied cement worth Rs. 3,63,998 and steel worth Rs. 3,75,840 and the second period cement worth Rs. 12,89,534 and steel worth Rs. 3,96,525 by the PWD from its stores for the construction work and the assessment of entry tax was at the rate of 1 per cent for cement and for steel at 1.5 per cent after finding that the petitioner is a registered dealer under the Madhya Pradesh General Sales Tax Act and it has been assessed to purchase tax under section 7(1) of that Act and, therefore, it was also liable for payment of entry tax for iron, steel and cement, the entry having effected at its instance because it has ultimately used the materials for the construction work. The petitioner filed a revision before the Deputy Commissioner of Sales Tax who affirmed the order. The petitioner then filed the writ petition challenging the assessment of purchase tax under sec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... respect of entry tax payable under this Act. The question now remains for determination is whether there was sale of iron, steel and cement by the PWD while supplying these materials for the construction work undertaken by the petitioner. The learned counsel for the petitioner also conceded that if the supply of these materials is held to be sale within the meaning of section 2(n) of the Madhya Pradesh General Sales Tax Act, the petitioner would be liable for payment of entry tax as has been assessed but submitted that the property in this case in no point of time ever passed to the petitioner and continued to remain with the department although the department has in the final bills debited the price of the goods so supplied to the petitioner under clause (10) of the agreement. The petitioner was also bound to return the unused materials if so required by notice by the Engineer-in-Charge otherwise it can appropriate those materials and it can only be said that the unused materials so appropriated amounted to sale within the meaning of section 2(n) and not the other materials used for construction of the buildings of the PWD because the materials at all times remained the property ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the present case. It has been held therein as under: "The assessee, a registered dealer under the Madhya Pradesh General Sales Tax Act, 1958, executed certain works for the Public Works Department of the State Government. The department, which was not a registered dealer, supplied certain quantity of iron and cement to the assessee for being used in the construction works. Since the price of these articles was already included in the tender offered by the contractor and accepted by the State Government, necessary deductions were made from the final bill towards the price of iron and cement supplied by the department to the assessee in accordance with the terms of the contract entered into between them. As regards the stores supplied by the Government, the contract further provided as follows: 'All materials supplied to the contractor shall remain the absolute property of Government and shall not on any account be removed from the site of work and shall at all times be open to inspection by the Engineer-in-Charge. Any such materials unused and perfectly in good condition at the time of the completion or determination of the contract shall be returned to the Engineer-in-Charge's s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... meaning of the C.P. and Berar Sales Tax Act, 1947, and that the assessee was not a dealer' within the meaning of section 4 of the Act in respect of such supplies." The Division Bench erred in saying that there is nothing to indicate that the ownership of materials passed to the contractors. In that case, Hindustan Steel Limited supplied materials for construction of its building to the contractors and the price of materials so consumed in the construction work were deducted from its bills but this fact was overlooked by the Division Bench. There was clause 51 which was similar to clause (10) of the present case that all materials supplied to the contractor shall remain the absolute property of the company and shall not on any account be removed, from the site of work so long the materials were not used in the construction work. Once the materials were so used, there was transfer of those goods to the contractor and the price thereof were deducted from its bills. Similar is the decision of the Calcutta High Court in Cementation Patel v. Commissioner of Commercial Taxes [1981] 47 STC 385. The decision of the Supreme Court on which strong reliance is placed by the learned counsel is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sion Bench on the question whether the petitioner-appellant could be said to have effected entry of the goods in the local area and thereby made it liable for payment of entry tax under Section 3 of the M.P. Sthaniya Kshetra Me Mal Ke Pravesh Par Kar Adhiniyam, 1976 (hereinafter called the Act ). There was conflict between the Division Benches of the Madhya Pradesh High Court and as a result the matter was referred to the Full Bench. In order to appreciate the controversy and the question, it is necessary to state a few facts. 3. The appellant-company is a building contractor at Rajnandgaon in Madhya Pradesh and is registered as a dealer under the Madhya Pradesh General Sales Tax Act. The appellant s tender for construction of food grains 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 by the appellant, the prices of the materials to be used for the construction including cost of Iron, steel and cement were included. The PWD, however, had agreed to supply from its stores the said iron, steel and cement for the construction work and to deduct the prices of materials so suppli ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... within the aforesaid period, then the contractor shall be bound to do so much of the work as may be possible with the materials and stores supplied in the aforesaid period. For the completion of the rest of the work, the contractor shall be entitled to such extension of time as may be determined by the Engineer-in-charge whose decision in this regard shall be final." As mentioned hereinbefore, under the said clause, all materials supplied to the contractor remained the absolute property of the Government and could not be removed on any account from the site of the work and were at all times open to inspection by the Engineer-in-charge. Any such materials remaining unused and in perfectly goods condition at the time of completion or determination of the contract were to be returned to the Engineer-in-charge at a place directed by him by a notice in writing in his hand if he so required but the contractor was not entitled to return any such material unless he was required to do so. There was no dispute that for the construction the appellant was supplied Iron, steel and cement by the PWD and it had purchased other materials from the market. The prices of Iron, steel and cement supp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and steel are in Schedule II and cement is in Schedule III and these are assessable to entry tax at the rate of 1.5 per cent and 1 per cent respectively. Under Section 6(c) of the Act where a dealer purchases goods specified in Schedule II and Schedule III in a local area from a person or a dealer who is not a registered dealer, it is presumed, unless the contrary is proved by him, that the entry of such goods had been effected by him into such local area before they were purchased by such dealer. It was, in those circumstances, presumed that the appellant had effected he entry of iron, steel and cement which were supplied by the PWD for the construction of work in the local area or consumption, use and sale therein. This position was conceded on behalf of the appellant before the Full Bench of the High Court. The PWD is not a registered dealer, and therefore, Section 6(c) of the Act applied to the appellant. Under Section 13 of the Act, certain provisions of the M.P. General Sales Tax Act applied mutatis mutandis to a dealer in respect of entry tax payable under the Act. The question, therefore, was whether there was sale of iron, steel and cement by the PWD while supplying those ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a sale of goods which was liable to sales tax as part of a contract for work under a statute enacted by the provincial or State Legislature, there must be a contract in which there was not merely transfer of title to goods as an incident of the contract, but there must be a contract, express or implied, for sale of the very goods which the parties intended should be sold for a money consideration, i.e., there must have been in the contract for work an independent term for sale of goods by one party to the other for a money consideration. The question in each case was one about the true agreement between the parties and the terms of the agreement must be deduced from a-review of all the attendant circumstances. But from the mere passing of the title to goods either as integral part of or independent of goods, it could not be inferred that the goods were agreed to be sold, and the prices was liable to sales tax. Whether a contract for service or for execution of work involved a taxable sale of goods must be decided on the facts and circumstances of each case. The burden in such a case lay upon the taxing authorities to show that there was a taxable sale. and that burden was not disc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing material remained distinct from the dried tobacco. Property In it passed to the customer, who had paid for It. On the basis of the practice prevailing In the factory of the assessee, contracts for sale arose easily by Implication and therefore the Sales Tax Authorities had rightly assessed the turnover In regard to the packing materials. 8. In Hindustan Steel Ltd. v .The State of Orissa (25 STC 211), this Court was concerned with Section 9(1) read with Section 25(1 )(e) of the Orissa Sales Tax Act, 1947. Penalty was imposed therein for failure to register as a dealer. But the liability to pay penalty did not arise merely upon proof of default registering as a dealer. An order imposing penalty for failure to carry out a statutory obligation was the result of a quasi-criminal proceeding and penalty would not Ordinarily be imposed. Between 1954 and 1959, the appellant-company was erecting factory buildings for its steel plant, residential buildings for its employees and ancillary work such as roads, water supply and drainage. Some construction work was done departmentally and the rest through contractors. The company supplied to the contractors for use in construction bricks, c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ble to be included before applying a flat rate to the appellant s receipts-On appeal this Govt. reversing the decision of the High Court held that since in substance and in reality the materials supplied by the Government always remained the property of the Government and the appellant merely had custody and fixed or incorporated them into the works, there was .not even a theoretical possibility of any element of profit being involved in the turnover represented by the cost of such materials. Though, ordinarily, when a work s contract was put through or completed by a contractor, profit from the contract was determined on the value of the contract as a whole and not by considering the several items that would go to form such value of the contract, where, as in that case, materials were supplied at fixed rates by the Government to the contractor solely for being used, fixed or incorporated in the works on the terms that they would remain the property of the Government and any surplus should be returned to the Government, and the real total value of the entire contract would be the value minus the cost of such materials so supplied. Since no element of profit was Involved in the turn ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as we have set out hereinbefore. For the purpose of performance, the contractor was bound to procure materials. But in order to ensure that quality materials are procured, the PWD undertook to supply such materials and store as from time to time required by the contractor to be used for the purpose of performing the contract only. The value of such quantity of materials and stores so supplied was specified at a rate and got set off or deducted from any sum due or to become due thereafter to the contractor, Mr. Virmani, appearing for the appellant submitted before us that in the instant case, there was no such independent and separate sale. but we are unable to accept. Though, in a transaction of this type there is no inherent sale; a sale Inheres from the transaction. Clause 10 read in the proper light indicates that position. 11. Our attention was a drawn to a Bench decision of the Kerala High Court in Construction Company, Changanacherry Another v. State of Kerala (36 STC 320), wherein on a consideration of the contract the Court came to the conclusion that the consideration stipulated to be paid to the petitioner in that case was for the work which the petitioner had under ..... X X X X Extracts X X X X X X X X Extracts X X X X
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