TMI Blog1979 (4) TMI 155X X X X Extracts X X X X X X X X Extracts X X X X ..... cial Tax Officers noted that payments received by the applicant in the said work during the relevant period had been excluded in computing its turnover. But they held that none the less the transactions between the applicant and its member-contractors and sub-contractors amounted to taxable sales inasmuch as the activities of the applicant therein amounted to a business of selling goods. It was noted that the goods which had been made over to member-contractors and the sub-contractors had been duly purchased by the applicant and that the transfers thereof were treated as sales and the entries in the books of the applicant in respect thereof were recorded as sales. It was noted further that such transactions which were large in number were effected systematically, fairly and regularly over a considerable period. It was also found that the applicant had disposed of its surplus, used and worked out stores, equipment and materials during the relevant period. These were also held to be taxable sales. Accordingly, the turnover of such taxable sales were computed by the Commercial Tax Officers on the basis of the applicant's books and tax was levied accordingly. Being aggrieved by the a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ty of the contractor. It was noted that in respect of the goods and materials made over by the applicant to its sub-contractors and member-contractors credits had been raised under the head "sundry debtors" aggregating to a considerable sum. It was also noted that there had been actual sales of plant, machinery, motor vehicles, air-conditioners, refrigerators, office equipments, survey equipments and laboratory equipments for money by the applicant. The Assistant Commissioner accordingly held that the transactions in question had been rightly held to be sales and he rejected the appeals. The applicant, being aggrieved, preferred revisions under section 20(3) of the Bengal Finance (Sales Tax) Act, 1941, against the order of the Assistant Commissioner, Commercial Taxes. The Additional Commissioner, the revisional authority, went further into facts and found, inter alia, as follows: (a) A contract had been entered into by and between the Government of India, Ministry of Iron Steel, and the Indian Steel Works Construction Co. Ltd., a consortium, also known as "Iscon" for the construction of Durgapur Steel Works. (b) The consortium in turn had distributed amongst its member-conc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ts submitted by the sub-contractors from time to time. The accounts of the sub-contractors were debited at the basic rates of the materials where such basic rates were available or at cost price. In certain cases extra amounts were charged by way of handling charges and storage. The subcontractors in their turn charged the applicant in respect of the works done at the agreed rates including the cost of the materials and in respect of the materials consumed at the works which were placed at the disposal of the subcontractors. The bills of the sub-contractors were accordingly adjusted and only the net amount was paid. The debits which were thus raised in its books did not represent any amount payable by the applicant to its sub-contractors and the amounts of credit were similarly not price or valuable consideration for the sale of the materials to the sub-contractors. The materials were only placed at the disposal of the sub-contractors for the purpose of the work. It was reiterated that under clause 8 of Part I of the contract, referred to hereinbefore, the property in the materials brought to the site vested in the Government of India on delivery to the site and till the same w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s for money, the materials belonged to the actual purchasers absolutely and that the title thereto remained with the purchaser and not with the Government of India, in spite of the fact that such materials were meant for being used in the contract and not for delivery on sale. He held that the provision in the contract to the effect that all materials supplied at the site would become the property of the Government on delivery did not by itself create any proprietary right in favour of the Government of India in respect of such materials and the relevant clause simply indicated that the materials purchased should be utilised only for the project and not for any other purpose. The restriction over the disposal of the materials was meant for the smooth and uninterrupted implementation of the work. The Additional Commissioner also found that the applicant as also the other members of the consortium had supplied a wide variety of materials not capable of being used in the construction systematically, fairly and regularly over a considerable period to the co-members of the consortium and also to other subcontractors. Accordingly, he held that the contention of the applicant that the p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and that the contracts between the applicant and its sub-contractors being different from that between the consortium and the Government of India did not affect each other. He next considered the meaning and construction of the expression "business" from reported decisions and the dictionary as also of the expressions "profit" and "convenience" and came to the conclusion that the petitioner carrying on its business as a contractor was definitely profit-oriented and in its dealings with its sub-contractors the concept of profit was involved. Under the relevant contracts the applicant was entitled to charge prices to such subcontractors to be fixed by the former. Such terms were variable and provided for escalation. He also noted that supply of materials by the applicant to its subcontractors and the other members of the consortium were made with the object of timely completion of the work and also to ensure the stipulated quality and quantity of work, which were valuable considerations for such supplies and the applicant must be held to be carrying on a business with the object of earning profit in the course of which the materials were transferred for smooth and expeditious compl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he applicant was a dealer within the meaning of the Bengal Finance (Sales Tax) Act, 1941? (2) Whether, on the facts and in the circumstances of the case, there was any material before the Board to hold that the applicant was a dealer within the meaning of the Bengal Finance (Sales Tax) Act, 1941? (3) Whether, on the facts and in the circumstances of the case and on the construction of the agreement entered into between the President of India and the Indian Steel Works Construction Company Limited on 31st October, 1956, the Board was right in holding that the said contract was a divisible contract? (4) Whether, on the facts and in the circumstances of the case, the Board was justified in not considering the said contract dated 31st October, 1956, between the President of India and the Indian Steel Works Construction Company Limited and the submission made relating thereto while considering the question whether the applicant could be treated as a dealer within the meaning of the Bengal Finance (Sales Tax) Act, 1941? (5) Whether, on the facts and in the circumstances of the case, the Board was right in holding that the said contract dated 31st October, 1956, between the Presid ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... not pressing for answers to the questions which had been sent up by the Tribunal under section 21(1) of the Bengal Finance (Sales Tax) Act, 1941. He stated that the applicant had not asked the said questions to be referred and, in any event, the said questions were so framed that the answers thereto were self-evident. Mr. Sanjay Bhattacharyya, the learned counsel for the sales tax authorities, submitted that he could not invite the court to answer the questions which were not being pressed by the applicant. In that view of the matter we decline to answer the questions sent up by the Tribunal under section 21(1) of the Act. In respect of the questions referred under section 21(2) of the Act Mr. Bajoria contended that so far as the transfers or supplies of materials by the applicant to the other members of the consortium and the sub-contractors were concerned by no stretch of imagination the same could be held to be sales either under the Indian Sale of Goods Act or within the meaning of the Bengal Finance (Sales Tax) Act, 1941. There could not be any sale without a transfer of property in the goods sold from the seller to the buyer. In the instant case, the property in the good ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Mr. Bajoria contended further that even if the extended definition of the expression "business" was held to apply, in the facts and circumstances of the instant case, the applicant could still not be held to be a dealer or a person carrying on the business of selling in respect of the said transactions. He referred to section 2 of the Bengal Finance (Sales Tax) Act, 1941, which provided as follows: "Section 2. In this Act, unless there is anything repugnant in the subject or context,(1a) 'business' includes(i) any trade, commerce or manufacture or any adventure or concern in the nature of trade, commerce or manufacture, whether or not such trade, commerce, manufacture, adventure or concern is carried on with the motive to make profit and whether or not any profit accrues from such trade, commerce, manufacture, adventure or concern; and (ii) any transaction in connection with, or ancillary or incidental to, such trade, commerce, manufacture, adventure or concern; * * * * (c) 'dealer' means any person who carries on the business of selling goods in West Bengal and includes the Government; * * * * (g) 'sale' means any transfer of property in goods for cash or deferred paym ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... commerce or manufacture whether or not such trade, commerce, manufacture, adventure or concern is carried on or undertaken with a motive to make gain or profit and whether or not any gain or profit accrues therefrom; and (ii) any transaction in connection with, or incidental or ancillary to, such trade, commerce, manufacture, adventure or concern." Construing the aforesaid and following the Supreme Court in the Raipur Manufacturing Co. Ltd.'s case[1967] 19 S.T.C. 1 (S.C.)., the Andhra Pradesh High Court held that the corporation had been primarily constituted for operating an efficient road transport service and could not be held to be carrying on the business of selling discarded vehicles and scrap accumulating in the course of its activities. It was contended by the sales tax authorities that the sales of the aforesaid by the corporation were transactions in connection with or incidental or ancillary to its trade, commerce, manufacture, adventure or concern within the meaning of the statute and therefore should be included in the taxable turnover. The High Court held that the incidental or ancillary transactions referred to in the definition had to be in connection with the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... spoiled drums, hose pipes, etc., were items connected with the business of the company and that the very nature of the said scrap prima facie indicated that they were the items used in the trade of the company. It was held that the sales of such goods as scrap were transactions connected with the company's trade or commerce and that the sales of advertisement materials by the assessee at cost or subsidised price were also similarly connected with such trade. The sales in the canteen at cost price of food materials to the workers of the company were also held to constitute sales as such transactions were part of the same business or trade of the company. (c) Chief Commercial Superintendent, South Eastern Railway v. Member, Board of Revenue, West Bengal[1973] 32 S.T.C. 171.-The facts in this case were that the South Eastern Railway periodically disposed of unclaimed goods in its possession for money. The Commercial Tax Officer found that disposal of unclaimed goods being a regular feature of the railway the transactions therein were exigible to sales tax. On a revision the Assistant Commissioner of Commercial Taxes upheld the order of the Commercial Tax Officer holding that th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... her for cash, or for deferred payment, or for commission, remuneration or other valuable consideration and includes- (i) the Central or a State Government or any of their departments, a local authority, a company, an undivided Hindu family......................." Section 2 of the Act as amended in 1965 read as follows: "'Business' includes (i) any trade, commerce or manufacture or any adventure or concern in the nature of trade, commerce or manufacture whether or not such trade, commerce, manufacture, adventure or concern is carried on with a motive to make gain or profit and whether or not any profit accrues from such trade, commerce, manufacture, adventure or concern; and (ii) any transaction in connection with, or incidental or ancillary to, such trade, commerce, manufacture, adventure or concern........................." In the facts of that case the Northern Railways were held by the Supreme Court to be liable to pay sales tax on sales of unserviceable materials and scrap. The contention that the railway was not carrying on any business of buying and selling and therefore the sales of unserviceable materials and scrap-iron, etc., would not be a transaction in conn ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... those expressed by smaller Benches of the court. That is the practice followed by this court itself. The practice has now crystallized into a rule of law declared by this court. If, however, the High Court was of opinion that the views expressed by larger Benches of this court were not applicable to the facts of the instant case it should have said so giving reasons supporting its points of view." He also cited another decision of the Supreme Court in Mattulal v. Radhe LalA.I.R. 1974 S.C. 1596. for the following observations: "Now there can be no doubt that these observations made in Smt. Kamla Soni's caseA.I.R. 1969 N.S.C. 186. (Civil Appeal No. 2150 of 1966 dated 26th September, 1969) are plainly in contradiction of what was said by this court earlier in Sarvate T.B.'s case(3). It is obvious that the decision in Sarvate T.B.'s case(3) was not brought to the notice of this court while deciding Smt. Kamla Soni's caseA.I.R. 1969 N.S.C. 186. (Civil Appeal No. 2150 of 1966 dated 26th September, 1969) or else this court would not have landed itself in such patent contradiction. But whatever be the reason, it cannot be gainsaid that it is not possible to reconcile the observations i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... would not be possible to resolve the controversy. In support of his contentions Mr. Bhattacharyya cited various decisions which are discussed hereafter. (a) Chandra Bhan Gosain v. State of Orissa[1963] 14 S.T.C. 766 (S.C.).-The facts in this case were that the appellant had entered into a contract with Hindustan Steel Private Ltd. for manufacture and supply of bricks at Rourkela in Orissa. The appellant objected to the levy of sales tax for supply of bricks under the contract on the ground that the earth from which the bricks were made belonged to the purchaser and therefore the bricks fashioned out of such earth all along remained the property of the consumer and, therefore, there was no transfer of property when the bricks were manufactured and supplied. It was contended further that the contract was only for labour or for work done. The Supreme Court held that under the contract the earth had been supplied by the purchaser to the assessee and there was a transfer of property in the said material from the consumer to the producer. It was held further that after the earth was fashioned into bricks and supplied by the manufacturer to the consumer there was again a transfer of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ealer has no effect on the questions to be decided in the instant cases. As to the transactions of the applicant with the other members of the consortium and its sub-contractors, it does not appear to us that the finding of the authorities below that the said transactions were sales concludes the question. The contention that the finding being entirely one of fact which not having been challenged stands concluded appears to us to be one over-simplifying the position. Whether a particular transaction amounts to a transaction of sale or not in our view is a mixed question of fact and law, the ultimate conclusion being always one of law. It is not disputed that the applicant, as a member of the consortium, was party to a contract with the Government of India under which the applicant and the other members of the consortium were obliged to carry out the construction of the steel works at Durgapur. The transactions between the applicants on the one hand and the other members of the consortium and/or its sub-contractors on the other were pursuant to the original contract. It is clearly laid down in the contract that the materials brought at the work site would remain the property of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f the expression "business" would apply, even otherwise, in the facts and circumstances as the decision in Davy and United Engineering Co. Ltd.[1978] 42 S.T.C. 90. was based on the decisions in Shew Bhagwan Goenka[1973] 32 S.T.C. 368. and Bengal Paper Mill Co. Ltd.[1976] 38 S.T.C. 163. from which appeals were pending before the Supreme Court. We have carefully considered the High Court decisions in Andhra Pradesh State Road Transport Corporation, Hyderabad[1971] 27 S.T.C. 42., and Chief Commercial Superintendent, South Eastern Railway[1973] 32 S.T.C. 171., and the decision of the Supreme Court in Burmah Shell Oil Storage and Distributing Co. of India Ltd.[1973] 31 S.T.C. 426 (S.C.). The principles which have been laid down in the said cases appear to us to be as follows: (a) Even under the extended definition of the expression "business" it is to be determined by the sales tax authorities whether in carrying on isolated transactions the person sought to be charged to sales tax is carrying on business as a dealer, i.e., the business in selling the items concerned. If this is found to be so then sales tax would be exigible in respect of the items sold or dealt with in the said tr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er section 21(2) of the Bengal Finance (Sales Tax) Act, 1941, as follows: Question No. (1) is answered in the negative and in favour of the applicant. Question No. (2) is similarly answered in the negative and in favour of the applicant. As to question No. (3) the Board has held the contract concerned to be divisible on the sole ground that the said contract is divided into different parts. We do not think that the conclusion of the Board in this respect is correct. In our view the contract relates solely to a particular work, namely, the construction of Durgapur Steel Works, and as such it is an indivisible contract. Question No. (3) is, therefore, answered in the negative and in favour of the applicant. Questions Nos. (4) and (5) are answered in the negative and in favour of the applicant. Questions Nos. (6), (7) and (8) are answered in the negative and in favour of the applicant. As to question No. (9) it appears to us that the finding of the Board which is sought to be impugned is not at all clear. The impugned finding is tentative and vague and no final conclusion is reached. In that view of the matter this question does not call for any answer. We answer questio ..... X X X X Extracts X X X X X X X X Extracts X X X X
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