1958 (9) TMI 62 - HC - VAT and Sales Tax

Summary

Issues:
1. Whether building materials used in construction by contractors constitute a sale?
2. Whether contractors are considered "dealers" under the U.P. Sales Tax Act?
3. Can the turnover of building materials be assessed separately from labor charges?
4. Are contractors liable to pay tax on building materials supplied through specific departments?

Analysis:
The judgment involved seven references under section 11 of the U.P. Sales Tax Act, where contractors were assessed for sales tax on the value of materials used in construction. The contractors argued that the materials were not sold, but the Sales Tax Authorities disagreed. The Judge Appeals and Judge Revisions upheld the assessment, leading to references to the High Court. The Supreme Court rulings clarified that in building contracts, there is no sale of materials as such, and thus, the state legislature cannot impose sales tax on building materials used in contracts. The High Court concluded that unless there is a specific contract for the sale of materials, contractors are not considered dealers under the Sales Tax Act, and the value of building materials cannot be included in turnover unless contracted to be sold.

The judgment emphasized that the distinction between materials sourced through different departments was irrelevant, as the contractors did not sell the materials. The High Court rejected the argument that contractors may have entered into separate contracts for materials and services, stating that the contracts were composite works contracts without any explicit agreement for material sale. The High Court answered the referred questions by affirming that without a distinct contract for material sale, no sale of materials occurred, contractors are not deemed dealers, and the value of building materials cannot be included in turnover unless specifically contracted to be sold. The court also ruled that the source of materials, whether through specific departments or not, does not impact the tax liability of the contractors.

Regarding costs, both parties were deemed justified in their positions before the Supreme Court's clarification, so each party was ordered to bear their own costs. The fee of the Standing Counsel was assessed at a total of Rs. 200 for all references. The High Court answered the references accordingly, providing clarity on the taxation of building materials in construction contracts.