1969 (9) TMI 106 - HC - VAT and Sales Tax

Summary

Issues Involved:
1. Construction of contract documents and whether the contract was divisible.
2. Legal validity of the Tribunal's order regarding the imposition of sales tax on switchgear.

Issue-wise Detailed Analysis:

1. Construction of Contract Documents and Divisibility:

The primary issue was whether the terms set out in the two agreements for the supply of materials stood independent of the execution and erection of the power supply system and cabling work. The court noted that if the supply of materials was an essential part of the erection of the electrical system, it could not be construed as a sale by the contractor to the customer, and thus, no sales tax would be applicable. Conversely, if the supply of materials was regarded as separate from the use of the materials in putting up the electrical system, then sales tax would be payable.

The Assistant Superintendent of Sales Tax and the Deputy Commissioner of Sales Tax held that the materials supplied were separate from the work done and thus taxable. However, the Commercial Taxes Tribunal disagreed, concluding that there was no independent transaction of sale and that the contract was an indivisible works contract. The Tribunal's decision was based on the terms of the agreements, which indicated that the supply of materials and the execution of work were part of a single transaction.

The High Court upheld the Tribunal's view, emphasizing that the property in the materials passed only with the delivery of the entire power system and the completion of the cabling work, thus supporting the indivisibility of the contract. The court referenced significant judgments, including the State of Madras v. Gannon Dunkerley and Carl Still G.m.b.H. v. The State of Bihar, to support its conclusion that the contract was a works contract and not subject to sales tax.

2. Legal Validity of Tribunal's Order on Switchgear:

The second issue was whether the State of Bihar could impose sales tax on the dealer for the sale of switchgear manufactured by Jyoti Galor Emeg. Ltd. The Tribunal found that the switchgear was dispatched from Baroda to Barsua (Orissa), and since the movement of goods commenced from Baroda, Bihar had no jurisdiction to impose sales tax on this transaction. The High Court agreed with the Tribunal, noting that the transaction was not subject to Central sales tax as it was an inter-State trade, and the tax could only be levied in the state from which the goods were dispatched.

The High Court concluded that the Tribunal's decision was correct and did not warrant a referral to the High Court. The court noted that the Advocate-General did not argue this issue further, indicating acceptance of the Tribunal's conclusion.

Conclusion:

The High Court held that the Tribunal correctly construed the contract as a works contract, not subject to sales tax under the Central Sales Tax Act. The court answered Question No. (1) in favor of the assessee and against the department, affirming the Tribunal's decision. The reference was answered accordingly, with no order as to costs.