1993 (2) TMI 291 - HC - VAT and Sales Tax

Issues Involved:
1. Whether the supply of hydraulic pressed blocks (tiles) by the applicant to the Government amounted to a sale of such tiles under the Gujarat Sales Tax Act, 1969.
2. Whether the determination of the sale price of the goods supplied by the applicant was outside the purview of section 62 of the Gujarat Sales Tax Act, 1969.

Detailed Analysis:

Issue 1: Whether the supply of hydraulic pressed blocks (tiles) by the applicant to the Government amounted to a sale of such tiles under the Gujarat Sales Tax Act, 1969.

The applicant, a registered dealer under the Gujarat Sales Tax Act, 1969, entered into a contract with the State Government (PWD) for the supply of hydraulic pressed blocks (tiles) for the Panam Main Canal Project. The Deputy Commissioner of Sales Tax, Ahmedabad, concluded that the contract amounted to a sale of tiles for Rs. 74,333.12. This decision was upheld by the Gujarat Sales Tax Tribunal.

Key Features of the Contract:
1. Fixed Quantity and Price: The contract specified the supply of 7,804 square meters of tiles at a fixed rate of Rs. 7.50 per square meter, totaling Rs. 74,333.10.
2. Testing and Approval: The manufactured tiles had to undergo tests for strength, resistance to wearing, and water absorption at the departmental laboratory. Tiles that did not meet the specified standards were to be rejected with no payment made for them.
3. Cement Supply: The government was to supply 85.844 metric tonnes of cement at a fixed rate of Rs. 494 per metric tonne, with the applicant required to return empty cement bags in serviceable condition or pay Re. 1 per bag.
4. Sales Tax Clause: Condition No. 21 stated that the contractor's rates included sales tax on materials purchased for the contract. If sales tax became payable during the contract, it would be paid by the department.

The applicant argued that the contract was a works contract, not a sale, citing:
- The contract was executed in "B-1" form, meant for works contracts.
- The main ingredient (cement) was supplied by the PWD.
- The manufacturing process was supervised by the Executive Engineer.
- Condition No. 21 indicated no sales tax was payable on the completed work.

The Tribunal, however, relied on the Supreme Court's decision in Commissioner of Sales Tax v. Sabarmati Reti Udyog Sahakari Mandali Ltd. [1976] 38 STC 203, which established that whether a transaction is a contract of sale or a works contract depends on the true construction of all terms and conditions. The essence of a contract of sale is the transfer of property in, and delivery of, a chattel as a chattel to the buyer.

The Tribunal concluded that the contract was for the sale of tiles because:
- The contract specified the supply of a fixed quantity of tiles at a fixed price within a stipulated time.
- Ownership of the tiles passed to the department only after approval based on specified tests.
- The contract did not suggest payment for labor charges alone.
- The applicant supplied machinery and minor materials like sand and chips.
- Cement was supplied at a fixed rate, with conditions for its use and return of bags.

The Tribunal rejected the argument that the form of the contract or the supply of cement indicated a works contract. The supervision by the department was to ensure quality, not to negate the sale.

Therefore, the Tribunal rightly held that the contract was for the sale of tiles, answering Question No. 1 in the affirmative in favor of the Revenue and against the assessee.

Issue 2: Whether the determination of the sale price of the goods supplied by the applicant was outside the purview of section 62 of the Gujarat Sales Tax Act, 1969.

The applicant did not press this question, as it had already been determined by the Division Bench of the Court in Bengal Electric Lamp Works Ltd. v. State of Gujarat [1991] 83 STC 309. The Tribunal held that the determination of the sale price was outside the purview of section 62 and could not be entertained in appellate proceedings because it was not raised before the Deputy Commissioner of Sales Tax.

Thus, the Tribunal correctly held that the determination of the sale price was outside the purview of section 62, answering Question No. 2 in the affirmative in favor of the Revenue and against the assessee.

Conclusion:
Both questions were answered in the affirmative in favor of the Revenue and against the assessee. The contract for the supply of tiles was deemed a sale under the Gujarat Sales Tax Act, 1969, and the determination of the sale price was outside the purview of section 62. There was no order as to costs.

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