1996 (8) TMI 490 - HC - VAT and Sales Tax

Summary

Issues Involved:
1. Whether the appellant is a "dealer" as defined under section 2(f) of the Rajasthan Sales Tax Act, 1954.
2. Whether the transaction in question constitutes a "contract for sale" or a "contract for works and labour."

Issue-wise Detailed Analysis:

1. Whether the appellant is a "dealer" as defined under section 2(f) of the Rajasthan Sales Tax Act, 1954:

The appellant, a registered partnership-firm engaged in bricks-kiln contracts, entered into contracts with the Indira Gandhi Nahar Project for the supply of kiln-burn tiles and bricks. The Assistant Commercial Taxes Officer issued notices under section 12 of the Rajasthan Sales Tax Act, prompting the appellant to file writ petitions. The learned single Judge dismissed these petitions, holding that the appellant is a "dealer" and that the transaction constitutes a "sale" under the Act. The appellant contended that the contracts were "labour contracts" and not for the sale of bricks, asserting that all materials supplied by the department remained its property. The respondents supported the single Judge's decision, arguing that the appellant is a "dealer" and the transactions are "sales" subject to tax.

2. Whether the transaction in question constitutes a "contract for sale" or a "contract for works and labour":

The primary question was whether the contract for supplying bricks and tiles is a "contract for works and labour" or a "contract for sale." The court analyzed the distinction between the two, as defined in legal precedents and authoritative texts like Halsbury's Laws of England and Benjamin's Treatise on the Law of Sale of Personal Property. The court noted that a "sale" involves the transfer of ownership for a price, while a "contract for work" does not involve such a transfer.

The appellant argued that the contracts were for making bricks from materials supplied by the department, with the property in the materials and finished products always remaining with the department. The respondents cited various cases to support their stance that the transaction was a "sale." The court reviewed several Supreme Court cases to understand the principles distinguishing "works contracts" from "contracts for sale."

In cases like Government of Andhra Pradesh v. Guntur Tobaccos Ltd. and State of Gujarat v. Kailash Engineering Co. (Pvt.) Ltd., the Supreme Court held that contracts involving the supply of materials and execution of work could be classified as "works contracts" if the primary obligation was to perform work rather than transfer goods.

The court then examined the specific terms and conditions of the contracts in question, noting that all materials used were supplied by the Government and remained its property. The contracts were for manufacturing and supplying bricks and tiles, with the materials always belonging to the department. The court concluded that the transactions were not "sales" because the property in the materials and finished products never passed to the contractor.

Conclusion:

The court held that the contracts in question were "contracts for works and labour" and not "contracts for sale." Consequently, the appellant was not a "dealer" under the Rajasthan Sales Tax Act, and the transactions were not subject to sales tax. The appeals were allowed, and the judgment of the learned single Judge was quashed and set aside.