1996 (8) TMI 488 - HC - VAT and Sales Tax

Summary

Issues Involved:
1. Jurisdiction of the Assistant Sales Tax Officer.
2. Nature of the contract: "contract for sale" vs. "contract for work and services".
3. Applicability of the precedent set in Sunder Das Jindal and Company v. State of Rajasthan.

Detailed Analysis:

1. Jurisdiction of the Assistant Sales Tax Officer:
The appellant-petitioner, a partnership firm and "A" class contractor, challenged the jurisdiction of the Assistant Sales Tax Officer, B-1, Bikaner, to assess sales tax on transactions involving the manufacture and supply of bricks and tiles to the Rajasthan Canal Project. The petitioner filed a return under protest and requested the assessing authority to drop the proceedings, citing a decision by the Deputy Commissioner of Sales Tax (Appeals), Bikaner, which indicated that these transactions were not subject to sales tax. However, the assessing authority refused to drop the proceedings without considering the petitioner's reply.

2. Nature of the Contract: "Contract for Sale" vs. "Contract for Work and Services":
The core issue was whether the contract was a "contract for sale" of bricks and tiles or a "contract for performance of work and services" to which the supply of bricks and tiles was incidental. The court emphasized that the determination of this question depended on the construction of the contract, the surrounding circumstances, the object of the transaction, and the intention of the parties. The court noted that if the passing of property is ancillary to the performance of work, it does not constitute a sale. The court referred to legal definitions and distinctions between "contract for work and labour" and "contract for sale" as outlined in Halsbury's Laws of England and Benjamin's Treatise on the Law of Sale of Personal Property.

3. Applicability of the Precedent Set in Sunder Das Jindal and Company v. State of Rajasthan:
The learned single Judge dismissed the writ petition based on the precedent set in Sunder Das Jindal and Company v. State of Rajasthan, which held that a similar contract was a "contract for sale" and subject to sales tax. However, the appellant contended that the terms and conditions of their contract were different from those in the Jindal case. The court agreed with the appellant, noting significant differences in the terms of the contract. In the present case, all materials used for manufacturing bricks and tiles were supplied by the Government, including local soil, heavy soil, water, and coal. The raw materials and the finished products remained the property of the Government throughout the process. The court concluded that the transaction was a single, inseparable "works contract" and not a "contract for sale" since the contractor never owned the bricks or tiles.

Conclusion:
The court held that the transaction in question was not a "sale" and therefore not subject to sales tax. The judgment of the learned single Judge was quashed and set aside, and the writ petition filed by the petitioner-appellant was allowed. The court determined that the transaction was a "contract for work and labour" and not a "contract for sale," distinguishing it from the precedent set in the Jindal case due to the differing terms and conditions of the contracts.