1968 (2) TMI 109 - HC - VAT and Sales Tax

Issues Involved:
1. Validity of the orders dated 25th February 1961 and 27th October 1964.
2. Nature of the contract - whether it was an indivisible works contract or included a separate agreement for the sale of materials.
3. Assessment of sales tax on the value of materials supplied under the contract.
4. Burden of proof on the taxing authorities to show an independent sale of materials.

Detailed Analysis:

1. Validity of the Orders Dated 25th February 1961 and 27th October 1964:
The petitioner challenged the orders dated 25th February 1961 (Annexure H) and 27th October 1964 (Annexure I). The primary contention was that the orders incorrectly assessed sales tax on the materials supplied under the contract, which the petitioner claimed was an indivisible works contract.

2. Nature of the Contract:
The central issue was whether the agreement (Annexure A) constituted an indivisible works contract or included a distinct and separate agreement to sell the materials used in the execution of the work. The court examined several Supreme Court decisions to determine the nature of the contract.

- State of Madras v. Gannon Dunkerley: The Supreme Court held that there was no agreement to sell the materials used in construction, and the assessment of the cost of materials by deducting a statutory proportion to represent the cost of labor was illegal.
- Banarsi Das v. State of M.P.: Followed Dunkerley's case to declare unconstitutional a statutory provision by which sales tax was payable in respect of building contracts as such.
- Peare Lal v. State of Punjab: Reiterated that whether a contract was indivisible or not was to be determined upon a construction of the agreement.
- Carl Still v. State of Bihar: Held that the lump sum price indicated an indivisible contract for the construction of specified works and did not involve any contract for the sale of materials.
- Government of Andhra Pradesh v. Guntur Tobaccos: Held that the supply of packing materials was incidental to the contract for the sale of tobacco and not a separate sale of materials.

3. Assessment of Sales Tax:
The court analyzed the terms of the agreement and found that the contract was for a lump sum payment for the installation of lamp posts, which prima facie constituted an indivisible works contract. The court noted that the materials were to be supplied by the Corporation, and the contractor was to be paid for labor, supervision charges, etc.

However, there was an exceptional contingency where the contractor might have to supply materials if the Corporation's supply was short. The court emphasized that the taxing authorities needed to show that such a contingency occurred and that the contractor supplied materials and charged for them separately.

4. Burden of Proof:
The court held that the burden of showing that a works contract involved a taxable sale of materials was on the taxing authorities. The authorities failed to discharge this burden as they did not provide evidence that the petitioner supplied materials under the exceptional clause and charged for them separately.

- The petitioner's return did not show any sale of materials used in the execution of the work.
- The bill produced by the petitioner indicated that the petitioner charged only the contractual amount and did not include any extra charge for materials.
- The assessing authority incorrectly concluded that the balance amount represented the value of materials supplied by the petitioner without proper evidence.

Conclusion:
The court quashed both the impugned orders at Annexures H and I and directed the respondent to make a fresh order of assessment after coming to a definite finding on whether the Corporation failed to supply materials, whether the petitioner supplied materials under the exceptional clause, and whether the petitioner charged any sum in excess of the stipulated amount. The rule was made absolute, and the respondent was ordered to bear the costs of the petition.

Petition allowed.

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