1979 (6) TMI 131 - HC - VAT and Sales Tax

Summary

Issues Involved:
1. Nature of the contract: Whether the contract for supplying and stacking ballast amounts to a contract for work or a composite contract for sale and work.
2. Applicability of precedent: Whether the decision in Bhide's case applies to the present case.
3. Criteria for determining sale vs. works contract.

Issue-wise Detailed Analysis:

1. Nature of the Contract:
The petitioner, an assessee under the Karnataka Sales Tax Act, 1957, entered into contracts with the railway department to supply and stack ballast at specified points. The Commercial Tax Officer initially assessed the turnover for the supply of ballast as taxable. However, the petitioner sought rectification, arguing that the contract was for work and not for sale, relying on the judgment in Bhide's case, which held that a contract for collection and training out of ballast amounts to a works contract. The Commercial Tax Officer accepted this argument and exempted the petitioner from sales tax.

2. Applicability of Precedent:
The Deputy Commissioner of Commercial Taxes, upon revising the orders, held that Bhide's case was not applicable since the contract in the present case was only for collection and stacking of ballast, not collection and training out. The Sales Tax Appellate Tribunal upheld this view, leading to the present revision petitions. The Division Bench, upon review, considered that Bhide's case was wrongly decided and referred the matter to the Full Bench.

3. Criteria for Determining Sale vs. Works Contract:
The Full Bench analyzed the criteria for distinguishing between a sale and a works contract. According to Supreme Court precedents, if the contract's object is to supply chattel as a chattel, it is a sale. If the contract's object is to carry out work with the use of materials, it is a works contract. The court examined the nature of the work, which was to supply and stack ballast at specified points. The work of stacking was merely to facilitate measurement and did not involve spreading or consolidating ballast on the railway track. The court distinguished between "stacking" and "training out," concluding that the former does not amount to a works contract.

The court referred to several Supreme Court decisions, including:
- Ram Singh & Sons Engineering Works v. Commissioner of Sales Tax, U.P.: Held that a contract for fabricating and erecting cranes was a works contract.
- Sentinel Rolling Shutters & Engineering Co. (P.) Ltd. v. Commissioner of Sales Tax, Maharashtra: Held that a contract for fabricating and installing rolling shutters was a works contract.
- State of Rajasthan v. M.I. Corporation: Held that a contract for manufacturing, supplying, and fixing windows was a works contract.

However, the court found that the present case was analogous to Chandra Bhan Gosain v. State of Orissa, where a contract for manufacturing and supplying bricks was held to be a sale. The court concluded that the essence of the contract was to supply ballast, and the requirement to stack it did not convert the transaction into a works contract.

Conclusion:
The Full Bench concluded that the contract for supplying and stacking ballast at specified points was a contract of sale and not a works contract. The court answered the reference accordingly, stating that such a contract amounts to a contract of sale.