1965 (12) TMI 122 - SC - VAT and Sales Tax

Whether the value of the materials consumed in carrying out the contracts for electric fittings is taxable under the Bombay Sales Tax Act (51 of 1959)? Held that - No answer should have been recorded by the High Court on the question framed, for the question whether in respect of a transaction sales tax is exigible may be determined only on the terms of the contract, and not from the invoice issued by the person entitled to receive money under the terms of the contract. The invoice did not represent any transaction, nor did it evidence a contract for work or for sale of goods. Without, therefore, expressing any opinion on the question whether the view taken by the Tribunal or by the High Court was correct, we discharge the answer recorded by the High Court on the ground that the question submitted for their opinion was not one which brought out the true question which was submitted to the Deputy Commissioner for opinion, and even if the question be amended, there is no evidence on which the question may be answer- ed

Summary

Issues:
Interpretation of a transaction as a sale under the Bombay Sales Tax Act (51 of 1959) based on an invoice for electric fittings and equipment.

Analysis:
The case involved the appellants, who were contractors for electric installations and registered as dealers under the Bombay Sales Tax Act. They sought clarification on whether the value of materials consumed in carrying out contracts for electric fittings was taxable under the Act. The Deputy Commissioner initially held that the transaction was not an indivisible works contract but a sale of goods, thus taxable under the Act.

Upon appeal, the Sales Tax Tribunal viewed the transaction as a single contract where goods were not intended to be sold as chattels, and property passed only after affixing the materials to the customer's building. The Tribunal raised a question for the High Court of Bombay to determine if the transaction amounted to a sale taxable under the Act.

The High Court opined that the transaction was a combination of two contracts: one for the sale of goods and the other for work and labor. It held that the part involving the supply of goods constituted a sale, agreeing with the Deputy Commissioner. The appellants appealed to the Supreme Court, challenging this interpretation.

The Supreme Court highlighted Section 52(1) of the Sales Tax Act, which empowered the Commissioner to determine questions related to sales, purchases, and tax liability. However, it noted a lack of evidence regarding the terms of the contract between the appellants and the customer in question. The Court emphasized the need for evidence to determine whether the transaction was a sale, emphasizing that an invoice alone was insufficient to establish the nature of the contract.

The Court criticized the Deputy Commissioner and the Tribunal for making conclusions without proper evidence. It emphasized that the determination of tax liability should be based on the terms of the contract, not just the invoice. Consequently, the Court discharged the High Court's answer to the question posed, stating that the true question was not adequately addressed, and there was a lack of evidence to support a definitive answer. The parties were directed to bear their own costs in both the Supreme Court and the High Court.

In conclusion, the Supreme Court emphasized the importance of evidence in determining tax liability under the Sales Tax Act and clarified that invoices alone are insufficient to establish the nature of a transaction. The judgment highlighted the need for a thorough examination of the contract terms to ascertain whether a transaction constitutes a sale under the Act.