1996 (6) TMI 340 - HC - VAT and Sales Tax

Summary

Issues Involved:
1. Whether M.E.S. is a "dealer" under the Andhra Pradesh General Sales Tax Act, 1957.
2. Whether Article 285(1) of the Constitution exempts the Central Government from payment of sales tax.
3. Whether the supply of goods by M.E.S. to the contractor amounts to a "sale."

Issue-wise Detailed Analysis:

1. Whether M.E.S. is a "dealer" under the Andhra Pradesh General Sales Tax Act, 1957:

The court examined the definition of "dealer" under Section 2(e) of the Andhra Pradesh General Sales Tax Act, 1957. The definition includes any person who carries on the business of buying, selling, supplying, or distributing goods. Explanation III specifically includes the Central Government or the State Government as "dealer" for the purposes of the Act, whether or not in the course of business. The court noted that the words "Central Government and the State Government" were part of the definition before July 1, 1985, and were subsequently included in Explanation III by Act 18 of 1985. Thus, the court concluded that the Central Government, including M.E.S., is a "dealer" within the meaning of Section 2(e) of the Act.

2. Whether Article 285(1) of the Constitution exempts the Central Government from payment of sales tax:

Article 285(1) of the Constitution exempts the property of the Union from all taxes imposed by a State or any authority within a State, unless Parliament provides otherwise. The court referred to the Supreme Court's judgment in In re, Sea Customs Act (1878) AIR 1963 SC 1760, which distinguished between direct taxes (such as property and income taxes) and indirect taxes (such as excise duty and sales tax). The Full Bench of the Andhra Pradesh High Court in W.P. No. 17664 of 1989 also held that Article 285(1) exempts the Union's property from direct taxes but not from indirect taxes. Therefore, the court concluded that sales tax, being an indirect tax, does not fall within the exemption provided by Article 285(1).

3. Whether the supply of goods by M.E.S. to the contractor amounts to a "sale":

The court referred to the Supreme Court's judgment in N.M. Goel and Co. v. Sales Tax Officer, Rajnandgaon [1989] 72 STC 368, where it was held that the supply of materials by P.W.D. to a contractor for use in construction work constituted a "sale." The property in the goods passed to the contractor upon their use in the construction work. Additionally, the Division Bench of the Andhra Pradesh High Court in T.R.C. No. 256 of 1990 held that the supply of materials by an assessee-company to a contractor for constructing its own building amounted to a "sale." Based on these precedents, the court concluded that the supply of cement and steel by M.E.S. to the contractor constituted a "sale" and was liable to sales tax.

Conclusion:

The court set aside the order of the Tribunal, holding that M.E.S. is a "dealer" under the Andhra Pradesh General Sales Tax Act, 1957, and that Article 285(1) does not exempt the Central Government from sales tax. The supply of goods by M.E.S. to the contractor amounts to a "sale" and is liable to sales tax. The tax revision case was allowed without costs.