1985 (3) TMI 239 - HC - VAT and Sales Tax

Issues Involved:
1. Disallowance of exemption claimed by the petitioner for works contract.
2. Justification for rejection of accounts and resorting to a best judgment assessment.
3. Determination of whether the transactions in question were outright sales or works contracts.

Detailed Analysis:

1. Disallowance of exemption claimed by the petitioner for works contract:
The petitioner claimed exemptions for turnovers of Rs. 13,339 and Rs. 1,24,910.58 for the assessment years 1974-75 and 1975-76, respectively, arguing that these were works contracts and not outright sales. The Tribunal had previously rejected this claim, stating that the erection part of the contract was incidental to the supply of floor beams. However, the High Court found that the contracts were indivisible and that the property in the floor beams passed to the customers only upon erection at their site. The court emphasized that the invoices and quotations showed a lump sum amount for fabrication, supply, transport, and erection, without separating the cost of the floor beams. The court concluded that the transactions were indeed works contracts, and the property in the floor beams passed only after erection, making the Tribunal's view incorrect.

2. Justification for rejection of accounts and resorting to a best judgment assessment:
The Tribunal had initially justified the rejection of the accounts and resorted to a best judgment assessment, adding a taxable turnover of Rs. 63,254 for the assessment year 1974-75. However, the High Court disagreed, stating that there was no justification for this rejection. The court held that the accounts were properly maintained and that the assessing authority's decision to add 5% for probable omissions was unfounded. Consequently, the High Court deleted the addition made by the Tribunal.

3. Determination of whether the transactions in question were outright sales or works contracts:
For the assessment year 1974-75, the court reviewed the turnover of Rs. 13,339, which included transactions with Mr. N. Zachira, Mr. M.L. Sheik Dawood, and Mr. Abdul Shukoor. The court found that the contracts were for the fabrication, supply, transport, and erection of floor beams at the customer's site, with no separate cost for the floor beams. The court concluded that the property in the floor beams passed only upon erection, making these transactions works contracts.

For the assessment year 1975-76, the court examined the turnover related to M/s. Abirami Theaters Private Limited, which involved a lump sum contract for the fabrication, supply, transport, and erection of steel roof trusses and other components. The court found that the invoices and correspondence indicated an indivisible contract, with the property passing only after erection at the customer's site. The court rejected the Tribunal's view that the transactions represented the sale of trusses, stating that the primary object of the contract was not the transfer of goods as chattel.

The court's conclusions were supported by precedents, including K.A. Ramachar v. State of Madras and Hindustan Aeronautics Ltd. v. State of Karnataka, which emphasized the importance of the primary object of the contract and the intention of the parties in determining whether a transaction is a works contract or a sale.

Conclusion:
The High Court allowed the revision petitions, holding that the turnovers of Rs. 13,339.60 and Rs. 1,24,910.58 for the assessment years 1974-75 and 1975-76, respectively, should not have been included in the taxable turnover of the petitioner. The court found that the transactions were works contracts and not outright sales, and there was no justification for the rejection of accounts and the addition of probable omissions. The court's decision was based on a detailed analysis of the contracts, invoices, and relevant legal precedents. There was no order as to costs.

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