1993 (3) TMI 321 - HC - VAT and Sales Tax

Summary

Issues Involved:
1. Whether the supply of pre-stressed concrete cement poles by the applicant to the Gujarat Electricity Board (GEB) amounted to a sale.
2. Whether the amount of sale price should be determined as the price fixed per pole or the net realization after deducting the value of cement and steel supplied by GEB.

Issue 1: Whether the supply of pre-stressed concrete cement poles by the applicant to the Gujarat Electricity Board (GEB) amounted to a sale.

The Tribunal found that the contract was for the manufacture and supply of pre-stressed concrete poles. The contract specified the quantity of poles to be supplied, the price per pole, and the payment terms, including the recovery of costs for materials supplied by GEB. The contractor was responsible for providing other materials and labor. The Tribunal concluded that the predominant intention was 'sale' even though the contract was termed as a works contract, and that the property in the materials passed to the contractor. The Tribunal also noted that the contractor was liable for the cost of materials used in damaged or rejected poles, indicating the passing of property in cement and steel to the contractor. The Tribunal held that the transaction was a sale and not a works contract.

The Supreme Court's distinction between a contract of sale and a contract for work and labor was referenced, noting that the primary object of the transaction and the intention of the parties must be considered. The Tribunal's conclusion was that the transaction was a sale, as the essence of the contract was the delivery of ready-made poles to GEB at a prescribed rate.

The applicant's argument that the contract was a works contract was rejected. The terms and conditions of the contract, including the establishment of a factory and the provision of space for storing raw materials and finished products, were not inconsistent with a contract of sale. The Tribunal's interpretation that the materials supplied by GEB remained its property only until they were used in the manufacture of poles, after which the poles became the property of the contractor, was upheld.

Therefore, the Court answered the first question in the negative, affirming that the supply of pre-stressed concrete poles by the applicant to GEB amounted to a sale.

Issue 2: Whether the amount of sale price should be determined as the price fixed per pole or the net realization after deducting the value of cement and steel supplied by GEB.

The Tribunal held that the sale price of the poles was the amount charged per pole as a unit, not the net realization after deducting the value of cement and steel supplied by GEB. The Tribunal's hesitation in concluding that the supply of materials was not a purchase by the contractor was noted, but it ultimately held that the sale price indicated in Schedule B to the works order was the price per pole. The contractor's deduction of the value of cement and steel from the gross price in the final bills did not affect the determination of the sale price.

The Court held that once it was determined that sales tax was leviable on the price of concrete poles supplied by the applicant to GEB, the question of deducting the value of cement and steel supplied by GEB did not arise. The applicant-contractor's equitable considerations regarding the net realization could be raised before the Tribunal, but in law, the sale price was the amount charged per pole as a unit.

Therefore, the Court answered the second question in the negative, affirming that the amount of sale price was the price fixed per pole and not the net realization after deducting the value of cement and steel supplied by GEB.

Conclusion:

Both questions were answered in the negative, against the assessee. The supply of pre-stressed concrete poles by the applicant to GEB amounted to a sale, and the sale price was the amount charged per pole as a unit, not the net realization after deducting the value of cement and steel supplied by GEB. There was no order as to costs.