1995 (12) TMI 357 - HC - VAT and Sales Tax

Summary

Issues Involved:
1. Whether the supply of material to contractors and fabricators for construction constituted a sale liable to tax under the M.P. General Sales Tax Act, 1958.
2. Whether the assessee can claim exemption from payment of sales tax on the building materials supplied to its contractors/fabricators under Notification No. 2990-3935-V-ST, dated September 17, 1977.

Issue-wise Detailed Analysis:

Issue 1: Supply of Material Constituting Sale
The primary issue was whether the supply of materials by the assessee to contractors and fabricators for construction purposes constituted a sale liable to tax under the M.P. General Sales Tax Act, 1958. The assessee, a public undertaking, supplied materials to contractors for constructing buildings and deducted the value of these materials from the contractors' bills. The Board of Revenue held that these supplies amounted to a sale, thereby making them liable to sales tax. The assessee contended that there was no transfer of property in the goods to the contractors and relied on prior decisions, including the High Court's decision in Commissioner of Sales Tax, Madhya Pradesh v. Hindustan Steel Limited, Bhilai Steel Project, Bhilai, and the Supreme Court's decision in State of Tamil Nadu v. Burmah Shell Oil Storage and Distributing Co. of India Ltd.

The Court examined the contractual clauses and cited the Supreme Court's interpretation in Hindustan Steel Ltd. v. State of Orissa, which established that such transactions constituted a sale. The Supreme Court had outlined the concurrence of four elements constituting a sale: competent parties, mutual assent, transfer of absolute property, and agreed price adjustment. The Court concluded that the transactions fulfilled all these criteria, thereby constituting a sale under the Act.

Issue 2: Exemption from Payment of Sales Tax
The second issue was whether the assessee could claim exemption from sales tax under Notification No. 2990-3935-V-ST, dated September 17, 1977. The notification exempted the purchase of goods specified in Schedule II, when purchased by a dealer from government departments or public sector undertakings, from payment of tax. The assessee argued that since the goods were exempted from purchase tax, they should also be exempt from sales tax. The Court analyzed the notification and clarified that it only exempted purchase tax, not sales tax. The Court found that the notification's language explicitly referred to purchase tax, and there was no indication that it intended to exempt sales tax as well.

The Court further distinguished the case from Wallace Flour Mills Co. Ltd. v. Regional Assistant Commissioner of Sales Tax, where a similar notification exempted the goods from both sales tax and purchase tax. The Court held that the express language of the notification in question did not support the assessee's claim for exemption from sales tax.

Conclusion:
The Court answered both questions in favor of the Revenue. It held that the supply of materials to contractors and fabricators constituted a sale liable to tax under the Act. Additionally, the assessee was not entitled to claim exemption from payment of sales tax under the specified notification, as it only exempted purchase tax. The reference was thus answered in favor of the Revenue and against the assessee.