1996 (1) TMI 410 - AT - VAT and Sales Tax

Summary

Issues Involved: Constitutionality of Section 6D of the 1941 Act, Taxability of Zinc under Section 6D, Deemed Sale in the Course of Import, Privity of Contract.

Issue-wise Detailed Analysis:

1. Constitutionality of Section 6D of the 1941 Act:
The applicant challenged Section 6D of the Bengal Finance (Sales Tax) Act, 1941, as ultra vires, arguing it transgressed the legislative power conferred under the Constitution of India. The Tribunal noted that the challenge was specifically against clause (a) of sub-section (1) of Section 6D, which pertains to "deemed sale" resulting from the transfer of property in goods involved in the execution of works contracts. The Tribunal dismissed the challenge, stating that clause (a) of Section 6D(1) derives its legality from sub-clause (b) of clause (29A) of Article 366 of the Constitution. Therefore, the constitutionality of Section 6D(1)(a) cannot be questioned without challenging the constitutional validity of Article 366(29A)(b).

2. Taxability of Zinc under Section 6D:
The applicant argued that the zinc worth Rs. 3,11,974.50 consumed in executing the works contract was a sale in the course of import and thus not liable to be taxed under Section 6D due to the prohibition in Section 27(1)(a) of the 1941 Act. The Tribunal held that Section 6D(1) does not extend sales tax to sales in the course of import/export in defiance of Section 27 of the 1941 Act. Instead, Section 6D(1) simply states that certain transactions constitute deemed sales liable to be taxed like any other sale within the meaning of the Act, subject to the restrictions and conditions provided in the Act and the Constitution.

3. Deemed Sale in the Course of Import:
The Tribunal examined whether the transfer of zinc in executing the works contract between the applicant and M/s. Gram Engineering was a sale in the course of import, thus protected from taxation under Section 27 of the 1941 Act. The Tribunal concluded that the purchase of zinc from M/s. M. Ratan & Company while the zinc was still in high seas was a distinct transaction. The transfer of zinc in executing the contract with M/s. Gram Engineering was a separate deemed sale. The Tribunal found that the two transactions were not integrated, and there was no stipulation in the contract with M/s. Gram Engineering requiring the use of imported zinc. Thus, the deemed sale did not qualify as a sale in the course of import.

4. Privity of Contract:
The Tribunal emphasized the absence of privity of contract between M/s. Gram Engineering and M/s. M. Ratan & Company. The contract for galvanizing M.S. trays and other articles did not specify the source of zinc. The Tribunal noted that the applicant could have used zinc from any source, and the zinc purchased from M/s. M. Ratan & Company was not sufficient to cover the entire works contract. Therefore, the Tribunal held that the deemed sale of zinc did not meet the criteria for being considered a sale in the course of import.

Conclusion:
The application was dismissed on the grounds that the deemed sale of zinc to M/s. Gram Engineering was not covered by the provisions of Section 27(1)(a) and was thus liable to be taxed under Section 6D of the 1941 Act. The Tribunal made no order as to costs since the applicant had already paid the tax payable on the deemed sale.