1990 (11) TMI 363 - HC - VAT and Sales Tax

Issues Involved:
1. Levy of tax on goods used in a works contract purchased at a concessional rate using "C" forms.
2. Nature of the contract: whether it is an indivisible works contract or a composite contract for work and sale of materials.

Detailed Analysis:

Issue 1: Levy of Tax on Goods Purchased at Concessional Rate
The primary issue is whether tax can be levied under the Tripura Sales Tax Act on goods used in a works contract, which were purchased at a concessional rate using "C" forms under the Central Sales Tax Act. The petitioner argued that the materials used in the works contract were not sold and thus should not be taxed. The court referred to a precedent in Studio Sen & Sen v. State of Tripura [1990] 79 STC 168; [1989] 2 GLR 392, where it was held that no tax could be levied on an assumed sale of materials used in an indivisible works contract. The court stated:

>"In the instant case, admittedly there being no sale of any goods whatsoever, the assessing officer had no authority to levy any tax on the 'assumed sale' of the materials purchased by the petitioner and used in works contract. Such an assumption is not warranted in a taxing statute."

The court concluded that the first issue is fully answered by the decision in Studio Sen & Sen, and no tax can be levied under the Tripura Sales Tax Act without an actual sale of goods.

Issue 2: Nature of the Contract
The second issue is whether the contract between the petitioner and Tripura Jute Mills Ltd. was a pure works contract or a composite contract for work and sale of materials. The court examined the terms and conditions of the contract, which was for the "supply, delivery, erection, and commissioning of a lighting system (indoor and outdoor) along with a sub-distribution board." The court noted that the contract involved not just the supply of materials but also their installation and commissioning, making it an indivisible works contract. The court cited several precedents, including:

- Vanguard Rolling Shutters & Steel Works v. Commissioner of Sales Tax [1977] 39 STC 372, where it was held that a contract for fabrication and installation of shutters was a works contract.
- State of Rajasthan v. Man Industrial Corporation Ltd. [1969] 24 STC 349, where the Supreme Court held that fixing window leaves to a building was an essential part of the contract, making it a works contract.
- Ram Singh & Sons Engineering Works v. Commissioner of Sales Tax [1979] 43 STC 195, where the fabrication and erection of a crane was deemed a works contract.

The court emphasized that the primary object of the contract was the erection and commissioning of the lighting system, with the supply of materials being merely ancillary. Therefore, the contract was fundamentally a works contract and not a contract for sale. The court stated:

>"Considering the facts of the present case in the light of the decisions set out above, it is evident that the contract in the present case was a contract for work and labour and not a contract for sale. The erection and commissioning of the lighting system was the fundamental and integral part of the contract."

Conclusion:
The court allowed the writ petitions, set aside the impugned orders of assessments, and directed the Superintendent of Taxes to reassess the turnover of the petitioner after excluding the value of the goods used in the execution of the contract. The judgment concluded with:

>"We, therefore, allow these writ petitions, set aside the impugned orders of assessments and direct the Superintendent of Taxes to reassess the turnover of the petitioner after excluding the value of the goods used in execution of the contract aforesaid. We make no order as to costs."

Both judges concurred, and the writ petitions were allowed.

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