1990 (8) TMI 359 - HC - VAT and Sales Tax

Summary

Issues Involved:
1. Whether the disputed turnover of Rs. 6,52,851 representing receipts towards rubber lining contract is taxable as sales or as a works contract.
2. Applicability of previous judgments in similar cases to the present case.

Issue-wise Detailed Analysis:

1. Taxability of the Disputed Turnover:
The primary issue in these tax revision cases is whether the disputed turnover of Rs. 6,52,851, representing receipts towards rubber lining contracts, should be taxed as sales or classified as a works contract. The assessing officer categorized the receipts as sales, making them exigible to tax under the Tamil Nadu General Sales Tax Act, 1959, the Tamil Nadu Sales Tax (Surcharge) Act, 1971, and the Tamil Nadu Additional Sales Tax Act, 1970. The assessee contended that it was merely a works contract, not involving any sale of goods.

The Tribunal set aside the assessment order, concluding that the transaction was a works contract and not a sale. It was noted that the rubber lining was specifically prepared for each job based on customer specifications and involved a detailed and technical process, including blending raw rubber with chemicals, treating the equipment's surface, and affixing the rubber lining.

2. Applicability of Previous Judgments:
The Tribunal distinguished the present case from the ruling in State of Tamil Nadu v. Dunlop India Ltd. [1981] 48 STC 521 (Mad.), where the transaction was deemed a sale due to the parties' intention and the nature of the contract. In Dunlop India Ltd., the contract explicitly involved the sale of rubberized wheels, and sales tax was charged and recovered. Conversely, in the present case, the Tribunal found no intention of passing property in the rubber lining to the customer, emphasizing the job's technical and customized nature.

The Tribunal applied principles from several cases, including Stanes Motors (South India) Ltd. v. State of Madras [1959] 10 STC 154 (Mad.), Appasamy and Sons v. State of Madras [1959] 10 STC 170 (Mad.), and A.A. Jariwala and Bros. v. State of Gujarat [1965] 16 STC 942 (Guj). These cases supported the view that the transaction was a works contract, not a sale, as there was no separate agreement for the sale of goods and the work was performed for a consolidated sum.

The Tribunal's decision was further supported by the Supreme Court's ruling in T.V. Sundram Iyengar & Sons v. State of Madras [1975] 35 STC 24 (SC), which held that the supply of bus bodies constituted a sale because the property in the materials used did not pass to the customer during construction. However, in the present case, the Tribunal found that the rubber lining process did not involve the transfer of property in goods, making it a works contract.

Conclusion:
The High Court upheld the Tribunal's decision, concluding that the disputed turnover represented a works contract and not a sale. The dominant object of the contract was the performance of work for a stipulated consideration, with the materials used being incidental to the job. Consequently, the tax revision cases were dismissed, affirming that the transaction was not exigible to sales tax.