1955 (9) TMI 51 - HC - VAT and Sales Tax

Summary

Issues:
Challenge to assessment of sales tax on supply of materials used in execution of contracts for Public Works Department and private parties under Article 226 of the Constitution.

Analysis:
The judgment pertains to four connected writ applications challenging the assessment of sales tax on the supply of materials used in the execution of contracts for the Public Works Department and private parties. The definition of "dealer" includes a person carrying on the business of supplying goods, and "sale" includes any transfer of property in goods made in the course of executing a contract. The State Legislature is empowered to levy a tax on the sale of goods based on the price actually paid for them, not on payments made to contractors for completed works, which include labor costs, supervision costs, and contractor's profit. The definition of "sale price" and Rule 7, which prescribes deductions for different types of contracts, were found invalid as they resulted in levying tax on labor, supervision, and profit, beyond the cost of materials. This view aligns with the decision in Pandit Banarsi Das v. State of Madhya Pradesh[1955] 6 S.T.C. 93.

In one of the writ petitions, the petitioner was assessed sales tax on payments received for works contracts, leading to tax on labor, supervision, and profit. The assessment order was declared illegal with regard to the tax on contract business, and recovery of a specific sum was prohibited. Similarly, in another petition, an assessment on contract business was deemed illegal, and recovery of a specific sum was barred. In two more petitions, assessments related to contract business were declared illegal, and recovery of outstanding balances was prohibited. The State was allowed to revise assessments and levy tax on the price of materials used in the works for recovery. The petitions were allowed in part, with parties bearing their own costs.

In conclusion, the judgment highlights the invalidity of assessing sales tax on payments for works contracts that include costs beyond materials. The court prohibited the recovery of specific sums in various assessments related to contract business and allowed the State to revise assessments for levying tax on materials used in works contracts.