1956 (11) TMI 22 - HC - VAT and Sales Tax

Issues Involved:
1. Constitutionality of the provisions of the Rajasthan Sales Tax Act, 1954.
2. Applicability of the Act to building contractors.
3. Validity of explanation (i) to section 2(t) and rule 7 of the Rajasthan Sales Tax Rules, 1955.
4. Definition and scope of "dealer" and "manufacturer" under the Act.
5. Applicability of the Act to contracts entered into before the Act came into force.

Detailed Analysis:

1. Constitutionality of the Provisions of the Rajasthan Sales Tax Act, 1954:

The main contention was whether building contracts that include both labor and materials constitute a sale of goods under Entry 54 of List II of the Seventh Schedule of the Constitution. The applicants argued that building contracts are indivisible and do not involve the sale of goods. The court examined the definition of "sale" in section 2(o) of the Act, which includes "a transfer of property in goods made in the course of execution of a contract." The court concluded that building contracts inherently involve the sale of materials, as the property in the materials passes from the contractor to the person who gave the contract. Therefore, the legislature was competent to tax this transaction as a sale of goods.

2. Applicability of the Act to Building Contractors:

The applicants argued that they are not dealers or manufacturers as defined under the Act and thus should not be subject to sales tax. The court held that building contractors, in the course of their business, supply goods for remuneration, which fits within the broad definition of a "dealer" under section 2(f) of the Act. Therefore, the Act is applicable to them.

3. Validity of Explanation (i) to Section 2(t) and Rule 7 of the Rajasthan Sales Tax Rules, 1955:

The applicants contended that explanation (i) to section 2(t) and rule 7 allowed taxation on an artificial basis unrelated to the actual value of materials. The court agreed, stating that the method prescribed by these provisions was artificial and could result in taxing labor and other non-material costs, which is beyond the scope of Entry 54. Consequently, explanation (i) to section 2(t) and rule 7 were held to be ultra vires and struck down.

4. Definition and Scope of "Dealer" and "Manufacturer" Under the Act:

The court examined the definitions in sections 2(f) and 2(k) of the Act. It held that building contractors who supply goods for remuneration fall within the definition of a "dealer." The argument that the applicants do not fit the definition of a dealer or manufacturer was rejected.

5. Applicability of the Act to Contracts Entered Into Before the Act Came Into Force:

The applicants argued that sales tax should not be levied on contracts made before the Act came into force on April 1, 1955. The court clarified that the relevant date for tax applicability is the date of the sale, not the date of the contract. Therefore, if the sale is deemed to have occurred on or after April 1, 1955, the Act applies, regardless of when the contract was entered into.

Separate Judgments:

Cases Nos. 9, 10, 53, 54, 103, and 104:

The court dismissed these applications, noting that the Sales Tax Officer should consider the judgment declaring explanation (i) to section 2(t) and rule 7 as ultra vires in further proceedings.

Case No. 121:

The court allowed this application, setting aside the assessment order of Rs. 654-8-0. The Sales Tax Officer was directed to reassess without relying on the ultra vires provisions. The applicant was awarded costs from the State.

Ordered Accordingly.

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