1972 (12) TMI 66 - HC - VAT and Sales Tax

Summary

Issues Involved:
1. Nature of the Contract: Whether the transaction between the petitioners and the Project Administration for the manufacture and supply of bricks is a sale or a works contract.

Detailed Analysis:

1. Nature of the Contract:
The primary issue in these tax cases is to determine whether the transaction for the manufacture and supply of bricks by the petitioners to the Project Administration is a sale or a works contract. The assessment years in question are 1963-64 and 1965-66, with disputed turnovers of Rs. 5,94,244.96 and Rs. 10,51,330.27, respectively.

The petitioners argued that the amounts received were for a works contract, not a sale. The Joint Commercial Tax Officer, Mylapore Division, however, assessed these amounts as sales. This assessment was upheld by the Appellate Assistant Commissioner and the Sales Tax Appellate Tribunal.

The court analyzed the terms and conditions of the contract, which included the petitioners manufacturing bricks using clay from the project land and coal supplied by the Project Administration. The contract specified that the bricks were to be manufactured and supplied as per the Project Administration's specifications, and the petitioners were prohibited from selling the bricks to any other party.

Several clauses in the contract indicated characteristics typical of a works contract:
- The work was to be carried out on-site.
- The Project Administration provided land and coal.
- The petitioners were under the control and direction of the Project Administration.
- The petitioners could not sub-let the contract without permission.
- The Project Administration had the right to purchase even inferior quality bricks at reduced rates.

The court noted that these conditions suggested a works contract rather than a sale. The Project Administration's control over the petitioners and their employees, the provision of materials, and the prohibition against selling to third parties were significant factors.

The court also referenced previous judgments, such as the Supreme Court's decision in Commissioner of Sales Tax v. Purshottam Premji, which held that similar contracts were works contracts. Additionally, the court cited Krishnaswami Rao v. State of Madras, where a contract with Neyveli Lignite Corporation was deemed a works contract due to similar terms.

The court concluded that the contract was for work and labor, with payment calculated based on the supply of the final product. The petitioners were not the full owners of the bricks, as the Project Administration retained significant control and provided essential materials.

Conclusion:
The court held that the contract in question was a works contract, not a contract for the sale of goods. Consequently, the tax revision petitions were allowed, and the assessments were overturned. The petitioners were awarded costs, with counsel's fee fixed at Rs. 150.

Judgment:
Petitions allowed.