1996 (11) TMI 434 - AT - VAT and Sales Tax

Issues Involved:
1. Quashing of the assessment order and demand notice.
2. Classification of the contract as a contract for work and labour or for sale.
3. Applicability of the Rajasthan Sales Tax Act, 1954, and relevant notifications.
4. Distinction from previous case law.

Issue-wise Detailed Analysis:

1. Quashing of the Assessment Order and Demand Notice:

The petitioner sought to quash the assessment order dated October 3, 1992, for the assessment year 1989-90 and the corresponding demand notice. The petitioner also requested that the respondents be directed to refund the amount already recovered and to not recover the amount mentioned in the demand notice. Similarly, in the second writ petition, the petitioner sought to quash the notice issued under rule 54 of the Rajasthan Sales Tax Rules, 1955, for the assessment year 1990-91. The Tribunal held that the assessment order (annexure 4) and the notice (annexure 5) deserved to be quashed, as the contract was determined to be one for work and labour, not for sale.

2. Classification of the Contract:

The petitioner argued that the contract with the Public Health Engineering Department (PHED) for manufacturing and supplying pre-cast cement concrete blocks (PCC blocks) was a contract for work and labour, not for sale. The terms and conditions of the contract included provisions such as the PHED providing cement and water free of cost, and the land for manufacturing PCC blocks also being provided by the PHED. The Tribunal found that the terms and conditions of the contract indicated that it was indeed a contract for work and labour. The Tribunal compared the terms of this contract with those in the case of Ganpat Ram & Co. v. State of Rajasthan, where a similar contract was held to be one for work and labour.

3. Applicability of the Rajasthan Sales Tax Act, 1954, and Relevant Notifications:

The petitioner contended that the cost of materials employed by them was less than 15% of the total amount received from the PHED, making the contract exempt from tax as per Government Notification No. 88 of 1973 dated November 7, 1988. The Tribunal agreed with this argument, noting that the expenses incurred by the petitioner on materials were below the 15% threshold specified in the notification. Therefore, the goods involved in the execution of the works contract were exempt from tax.

4. Distinction from Previous Case Law:

The respondents relied on the case of Sunder Das Jindal and Company v. State of Rajasthan, where a contract was held to be for sale. However, the Tribunal distinguished this case, noting that the terms and conditions were different. In Sunder Das Jindal, the contractor bore the cost of raw materials and other expenses, and the property in the materials remained with the contractor. In contrast, in the present case, the PHED provided key materials and retained ownership of the materials and the manufactured blocks. The Tribunal also referred to the judgment in Ganpat Ram & Co., which had similar terms and conditions and was held to be a contract for work and labour.

Conclusion:

The Tribunal concluded that the contract between the petitioner and the PHED was a contract for work and labour, not for sale. Consequently, the assessment order and the notice were quashed. The writ petitions were allowed, and it was held that the contract was not subject to sales tax. No order as to costs was made.

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