1990 (4) TMI 274 - AT - VAT and Sales Tax

Summary

Issues Involved:
1. Constitutionality of Sections 6D, 2(c), and 7 of the Bengal Finance (Sales Tax) Act, 1941.
2. Whether indivisible works contracts involve a sale.
3. Inclusion of value of materials supplied by the contractee in the contractual transfer price under Section 6D.
4. Inclusion of charges for labor, carriage, and other expenses in the contractual transfer price under Section 6D.
5. Inclusion of various expenses in the contractual transfer price under Section 6D.
6. Inclusion of expenses including royalty for materials in the contractual transfer price.
7. Taxation of goods declared to be of special importance under Section 14 of the Central Sales Tax Act, 1956.
8. Constitutionality of Section 6C of the Bengal Finance (Sales Tax) Act, 1941.

Detailed Analysis:

1. Constitutionality of Sections 6D, 2(c), and 7:
The applicants challenged the constitutionality of Sections 6D, 2(c), and 7, claiming they were beyond the legislative competence of the State Legislature and violated Articles 14, 19(1)(g), and 265 of the Constitution. The Supreme Court in the case of Builders Association of India [1989] 73 STC 370 had settled the constitutional challenges to Section 6D, except for the alleged discrimination regarding the use of declaration forms. The Tribunal found that the classification of contractors as a separate class under Section 6D was reasonable and had a rational nexus with the object of raising revenue. The denial of the benefit of declaration forms to contractors was not discriminatory or arbitrary, and the legislative provisions were held valid and constitutional.

2. Whether Indivisible Works Contracts Involve a Sale:
The Tribunal referred to the Supreme Court's decision in Builders Association of India, which held that after the Forty-sixth Amendment, works contracts became divisible into one for the sale of goods and the other for the supply of labor and services. It was possible for States to levy sales tax on the value of goods involved in a works contract. Thus, the Tribunal held that indivisible works contracts involve a sale of goods.

3. Inclusion of Value of Materials Supplied by the Contractee:
The Tribunal examined whether the value of materials supplied by the contractee should be included in the "contractual transfer price" under Section 6D. It was held that the value of goods supplied free of cost by the contractee should not be included in the taxable turnover. However, if the contractor pays for the goods supplied by the contractee, either directly or through deductions from the bill, the property in the goods passes to the contractor, and the value of such goods should be included in the contractual transfer price.

4. Inclusion of Charges for Labor, Carriage, and Other Expenses:
The Tribunal held that charges for labor simpliciter should not be included in the contractual transfer price, but the cost of freight and delivery for carrying goods to the worksite should be included. The price of fuel and firewood used in the execution of the works contract should not be included in the contractual transfer price. Profit should also not be included in the contractual transfer price.

5. Inclusion of Various Expenses:
The Tribunal stated that it could not provide a blanket decision on hypothetical cases regarding the inclusion of various expenses in the contractual transfer price. Each case should be judged on its own merits by the assessing authority, and disputes should be resolved through the appropriate quasi-judicial levels.

6. Inclusion of Expenses Including Royalty:
The Tribunal held that expenses including royalty incurred for the supply of boulders, stone chips, and other materials used in the execution of works contracts should be included in the contractual transfer price. The decision was based on the reasoning that payment of royalty and collection of materials by the contractor resulted in the transfer of property in the materials to the contractor.

7. Taxation of Goods Declared to Be of Special Importance:
The Tribunal held that declared goods under Section 14 of the Central Sales Tax Act, 1956, used in the execution of a works contract, could only be taxed in accordance with Section 15(a) of the said Act, which limits the tax rate to four percent and restricts taxation to one stage.

8. Constitutionality of Section 6C:
The challenges to Section 6C were not pressed during the hearing. The Tribunal held that the imposition of purchase tax under Section 6C was valid and constitutional. The classification of dealers based on their notified purchase price was reasonable and had a rational nexus with the object of raising revenue from an economically superior class of dealers.

Conclusion:
The Tribunal upheld the constitutionality of Sections 6D, 2(c), 7, and 6C of the Bengal Finance (Sales Tax) Act, 1941. It held that indivisible works contracts involve a sale of goods, and the value of materials supplied by the contractee, if paid for by the contractor, should be included in the contractual transfer price. Charges for labor simpliciter, profit, and the price of fuel and firewood should not be included in the contractual transfer price. Expenses including royalty for materials used in works contracts should be included in the contractual transfer price. Declared goods used in works contracts should be taxed in accordance with Section 15(a) of the Central Sales Tax Act, 1956.