TMI Blog1963 (12) TMI 20X X X X Extracts X X X X X X X X Extracts X X X X ..... t on 13th April, 1956. In January, 1960, the Sales Tax Officer, Rajnandgaon, issued a notice under section 18(6) of the Act informing the petitioner that it was a "dealer" under the Act liable to pay tax in respect of the aforesaid period and had failed to apply for registration and thereby rendered itself liable to be assessed to the best of judgment and also made itself liable to penalty, and calling upon it to show cause why it should not be assessed to tax and why a penalty should not be imposed. The petitioner appeared before the Sales Tax Officer and contested its liability to tax on the ground that under the contract between it and the Project it had only collected and transported sand from the quarry at the Sheonath river-bed to the site of the steel plant; that the supply of sand to the Project did not involve any sale but was in execution of a contract for the performance of certain services, namely, the conveyance of sand, at certain rates; and that it was the Project which held a lease from the Government for the extraction from the river-bed and the sand always remained the property of the Project. This contention was rejected by the Sales Tax Officer who took the view ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... quarry at Sheonath river-bed in accordance with the specifications laid down therein and transport it to the Project at the Auxiliary Plant Site and stack it in the bins; that the applicant had to pay all quarry fees, royalties, octroi duties, ground rent etc.; that payment to the contrator was made only for approved sand conforming to the specifications given; and that "on account payment" for sand of approved supplies stored on the river bank at the specified area was made on the basis of approximate measurements to the extent of Re. 1 per 100 c.ft. "for the approximate value of sand" and the Government had lien on such material. The Sales Tax Commissioner regarded these incidents as conclusively showing that the contract, which the petitioner held with the Project, was a contract for sale and supply of sand and not a contract of works. The Commissioner thought that he was fortified in this conclusion by the decision of this Court in Seth Pamandas Sindhi v. State of Madhya Pradesh [1963] 14 S.T.C. 74. 4.. The petitioner contends that the agreement under which it "supplied" sand to the Project was nothing more than an agreement for transport and carriage of sand; that by that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... arantee the supply of the quantity of sand; and that it had also to bear quarry fees, royalties, octroi duties, ground rent etc., as indicating that the Project had authorized the petitioner to quarry the sand from the river-bed on payment of royalty, to appropriate the sand to itself and then to supply it to the Project. The respondents say in paragraph 17 of their return".............the contract between the petitioner-company and the Hindustan Steel Ltd. was for supply of goods, i.e., sand, according to the specifications given at the Project site after winning the sand from the Sheonath river-bed at a specified price. All the costs of winning, processing and carrying the sand and stacking it in the specified bins was to be borne by the petitioner inclusive of royalties, octroi, ground rent, etc. The essence of the contract therefore was for supply of approved quality of goods to the extent of specified quantity at a specified site and at a specified rate. The transaction was a transaction of sale and not works contract as alleged. The fact that from the bills submitted by the petitioner the royalty was deducted does not in any way change the nature of the contract. The liabilit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... x Authority assessed the petitioner to sales tax, it could be held that there was a sale by the applicant-company of sand "supplied" by it to the Project. Taking first the lease (Annexure-A to the petition) in favour of the Project, it is evident from the first clause thereof that the Project was given the right in enter upon land measuring 38.50 acres situated in Mouza Sirsa Khurd, Durg District, constituting the river-bed of Sheonath river, to extract sand and to do all acts necessary for the extraction of sand, and the Project was prohibited from selling sand at a rate exceeding the one fixed from time to time by the Collector. Clause 2 of the lease made the Project liable from 8th June, 1957, and during the subsistence of the lease for the payment of halfyearly rent of Rs. 673-75 nP. This clause also provided that for and in respect of the rent so paid, the lessee may in the period in respect of which the same is payable work and raise from or out of the lands leased, and sell, export and otherwise dispose of such quantity of sand as would at the rate mentioned in the lease yield or pay for the half year a royalty equal in amount to the aforesaid certain half-yearly rent. The t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ct. Even if it be assumed that the respondents are right in their contention that assignment in violation of the condition in the lease in favour of the Project prohibiting assignment or subletting is not invalid, an examination of the terms and conditions of the agreement between the petitioner and the Project will show that their further submission that by that agreement there was an assignment of the quarry in favour of the petitioner is unsound. 8.. Admittedly, the agreement between the assessee and the Project is in the form of a contract for works. The form signed by the contracting parties is styled "tender for works". The assessee made a tender "for the execution for the President of the Indian Union of the works specified in the underwritten memorandum within the time specified in such memorandum at the rates specified therein, and in accordance in all respects with the specifications, designs, drawings, and instructions in writing referred to in rule 1 hereof and in clause 12 of the annexed conditions and with such materials as are provided for, and in all other respects in accordance with such conditions so far as applicable". The memorandum described the works thus- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... itions, according to the learned Government Advocate, indicated that there was a grant of quarry lease by the Project to the petitioner, that the petitioner had property right in the sand extracted by it, and when sand conforming to the specified granulometric composition was supplied to the Project at the site fixed for it there was a transfer of property in the sand by the assessee to the Project and the sale of the sand to the Project. 9.. In our judgment, it is impossible to say on the conditions of the contract relied on by the respondents that the agreement between the assessee and the Project was not a contract for labour and transport of sand wholly and purely but was a contract for the sale and supply of sand conforming to the specified granulometric composition at the nominated place. On the face of it, the contract, which the petitioner-company held from the Project, was one for quarrying the river-bed on their behalf. The operation, which the petitioner-company undertook under the contract, consisted of extracting or quarrying the sand, breaking and screening it for the purposes of collecting sand only of the requisite granulometric composition, collecting the sand thus ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... object of the condition of inspection and testing was only to ensure that sand of the right sort was supplied and not to constitute a contract of sale of sand. The condition with regard to guarantee of supply of 1,57,83,570 c. ft. of sand in four years was meant only for securing the expeditious execution of the work. This becomes clear from the general condition in the contract with regard to payment by the assessee of compensation for delay in the execution of the work. It is on the petitioner's liability under the agreement for the payment of quarry fees, royalties etc. and on the terms of the special condition with regard to advance payment that considerable emphasis has been laid by the respondents. In paragraph 17 of the return reproduced above, it has been stated"The liability under the contract to pay the ground rent and royalty was that of the petitioner but under the quarry lease executed in favour of the Hindustan Steel Ltd., the purchaser was liable to pay the royalty and hence to safeguard its own interest the royalty was deducted by the purchaser and so it means that there is a grant of quarry lease by the Hindustan Steel Ltd. to the petitioner." This is perhaps a pi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... "on the basis of approximate measurements to the extent of rupee one per 100 c.ft. for the approximate value of sand." The maximum rate of payment was thus Re. 1 only per 100 c.ft. Thus the rate of advance payment that was fixed was with reference to the measurement of cubic feet and not on the basis of any percentage of monetary value of the sand collected. That being so, the monetary value of the sand did not at all enter into the picture in the fixation of rate of advance payment. The expression "the approximate value of sand" used in the condition could, therefore, only mean not the monetary value but the granulometric quality value of the sand and it was according to the quality of the sand stored that the rate of advance payment within the maximum limit of Re. 1 per 100 c.ft. was fixed. The term about "on account payments" no doubt speaks of the contractor agreeing to the Government's lien on such materials. It is true that the creation of lien in favour of a person on some property postulates that the property belongs to another person, and a lien is a charge or security on the property for the payment of some debt or obligation. But it would be altogether erroneous to attac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the State Government was recovered from the petitioner and the applicant was in a position to transfer property right in the sand to the Project. The question is not whether the Project was in a position to transfer property in the sand to the petitioner and the petitioner was thereafter in a position to re-transfer property in sand to the Project. It is whether this actually happened. On the terms and conditions of the two agreements, on the footing of which the Sales Tax Authorities reached the conclusion that they did, it cannot be held that the transactions of supply of sand by the assessee to the Project constituted sales as defined in the Act. 13.. Turning now to the authorities, the Sales Tax Commissioner was of the view that the assessee's case fell within the scope of the principle laid down in Seth Pamandas Sindhi v. State of M.P. [1963] 14 S.T.C. 74. That was a case where the assessee had taken several contracts for the supply of ballast to the railways and the Collectors of various districts gave leases of quarries to the assessee in their districts for quarrying stones and sand. The assessee extracted the material and sold it in the form of ballast to the railways a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r spot and the supply constituted sale transactions liable to assessment under the Madras General Sales Tax Act, 1939. In that case, it was conceded by the assessee that the quarries wherefrom the materials were to be collected were quarries which belonged to the assessee himself. Thus the assessee was the owner of the material which he supplied to the Corporation. At page 837 of the Report the learned Judge of the Madras High Court observed that"If the quarrying was to be done by A in certain quarries belonging to B and the quantity quarried was supplied to B as a result of the contract, obviously there would be no transfer of property at all involved in the transaction." The present case is clearly of the type illustrated by the learned Judge of the Madras High Court. 14.. In State of Andhra Pradesh v. Kalva Suryanarayana[1962] 13 S.T.C. 317., the assessee contracted with the Government for the collection and supply of Gulmohva flower used as a base for preparation of alcohol. Under the contract the assessee had to collect the flower, store it in his godowns, transfer the same to Government distilleries at his expense, and was to be paid for all these at a particular rate for e ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by the Project and the agreement, dated 13th April, 1956, concluded between the petitioner and the Project, which the Sales Tax Authorities considered in making the assessment, furnish no justification for holding that the sand, which the petitioner extracted and supplied to the Project, was the property of the petitioner and the supply transaction was a sale transaction. After the conclusion of the arguments, when the matter was pending for judgment, the respondents filed an application on 13th November, 1963, stating that the assessment period was from 1st February, 1957, to 31st March, 1959, and the quarry lease (Annexure A) held by the Project was executed on 18th May, 1960; that thus during the assessment period mining rights were not assigned by the Government to the Project; that in May, 1957, when the Hindustan Steel Private Ltd., Bhilai, applied for a lease of the area in question, the Deputy Commissioner, Durg, by an order dated 8th June, 1957, granted a temporary permission to the Project to extract sand from the Sheonath river-bed quarry and also permitted the Project to "allow any contractor to work" on behalf of the Project; and that subsequently the petitioner was a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... re"When the appellants next moved the Court under Article 226 for quashing the proceedings, they urged that the provisions of the Act, in so far as they purported to impose a tax on the materials supplied in the performance of the contract, as if they were sold, were ultra vires. If the respondents sought to tax the appellants on the footing that sales of materials were effected outside the contract, it was their duty to have put that case forward in answer to the petition. They did nothing of the kind. They did not file even a counter-statement. At the time of the argument, when faced with the decision of this Court in The State of Madras v. Gannon Dunkerley and Co. (Madras) Ltd.[1958] 9 S.T.C. 353; [1959] S.C.R. 379., their entire case was that the agreement between the parties should be construed as involving a sale of materials, and that their value could be ascertained from the invoices, account books and the course of dealings between the parties. No contention was urged that there were sales of materials which fell outside the agreement between the appellants and the owner. The learned Judges of the High Court in dismissing the petitions made it clear that the investigation ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to place new facts, which were never placed before the taxing authorities for assailing or supporting the impugned assessment. It is noteworthy that this liberty would not have been available to the petitioner or the Department if in this case the petitioner had filed an appeal under section 38 of the Act and the matter would have come up before us on a reference under section 44. In this view of the matter, it is not necessary to express an opinion on the question whether the temporary permission granted to the Project by the Deputy Commissioner of Durg on 8th June, 1957, for extraction of sand from the river-bed saying that the Project could "allow any contractor to work on behalf of the Project" resulted in the assignment of the quarry lease when the petitioner was allowed to work the quarry on behalf of the Project, and whether the term contained in the contract said to have been entered into between the petitioner and the Project on 14th March, 1959, prohibiting the disposal of the quarried material indicated that the petitioner became the owner of the sand. It must, however, be added that though the lease (Annexure A) was executed on 18th May, 1960, it was effective as a leas ..... X X X X Extracts X X X X X X X X Extracts X X X X
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