1963 (4) TMI 26 - HC - VAT and Sales Tax

Issues Involved:
1. Nature of the contract between the assessee and the Neyveli Lignite Corporation.
2. Applicability of the exemption notification issued by the State of Madras.
3. Interpretation of the terms and conditions of the contract.

Issue-wise Detailed Analysis:

1. Nature of the Contract:
The primary issue was whether the contract between the assessee and the Neyveli Lignite Corporation was for the supply of materials or for the execution of a works contract. The assessee contended that the contract involved quarrying and conveyance of materials, thus constituting a works contract. However, the Appellate Assistant Commissioner and the Tribunal rejected this contention, holding that the contract was for the supply of materials.

The High Court examined the terms of the contract, including the tender notice and the descriptive specifications. The tender notice required the assessee to supply specific materials at predetermined prices and locations. The contract was titled "Tender for Piece Work" and included detailed descriptions of the materials to be supplied, such as "Supply of hard laterite 1 1/2 " to 3" size at site of work shown by the Corporation Officers."

The Court concluded that the contract was primarily for the supply of materials, not for the execution of work. The fact that the materials had to be quarried from specific quarries owned by the assessee did not alter the nature of the contract. The Court emphasized that the assessee was paid based on the quantity of materials supplied, not for the labour involved in quarrying and transporting the materials.

2. Applicability of the Exemption Notification:
The assessee argued that the transactions were covered by an exemption notification issued by the State of Madras, which exempted "earth-work, laterite metal, sand, jelly and gravel quarrying contracts" from sales tax. The Court examined the notification and noted that it was intended to exempt contracts involving the work of quarrying only, where no transfer of property was involved.

The Court held that the notification did not apply to the present case, as the contract was for the supply of materials, not for quarrying. The notification would apply if the contract involved quarrying work alone without any transfer of property. Since the contract required the supply of quarried materials, it was not covered by the exemption notification.

3. Interpretation of the Terms and Conditions:
The Court analyzed the terms and conditions of the contract in detail. The tender notice required the assessee to inspect the site and quarries, and to provide samples of materials for approval before supply. The rates of payment varied based on the location of delivery, indicating that the cost of transport was considered in the pricing.

The Court referred to the definition of "collection of materials and stacking" in the Madras Detailed Standard Specifications, which included quarrying, breaking, screening, and transporting materials. However, the Court found that this definition did not support the assessee's contention that the contract was for labour. The payment terms and the requirement to supply materials at specific locations indicated that the contract was for the supply of materials.

The Court also cited a decision of the Andhra Pradesh High Court in State of Andhra Pradesh v. Kalva Suryanarayana, where a similar issue was considered. The Andhra Pradesh High Court held that the contract for the collection and supply of materials was a sale transaction, not a contract for work and labour. The Madras High Court applied the same principle to the present case, concluding that the contract was for the supply of materials.

Conclusion:
The High Court upheld the Tribunal's decision, confirming that the contract between the assessee and the Neyveli Lignite Corporation was for the supply of materials, not for the execution of a works contract. The exemption notification issued by the State of Madras did not apply to the contract, as it was not a quarrying contract. The petition was dismissed with costs, and the assessee's contention was rejected.

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