1991 (4) TMI 421 - AT - VAT and Sales Tax

Issues Involved:
1. Nature of the contract: Indivisible works contract vs. contract for sale of goods.
2. Interpretation of the contract terms.
3. Passing of property in goods.
4. Applicability of sales tax under the Bengal Finance (Sales Tax) Act, 1941.
5. Consistency in appellate decisions.

Issue-Wise Detailed Analysis:

1. Nature of the contract: Indivisible works contract vs. contract for sale of goods:
The primary issue was whether the contract in question was an indivisible works contract or a contract effecting the sale of goods. The applicants argued that the contract was a turnkey contract for construction, making it indivisible. They contended that the contract was for the construction of specified work, not for the sale of materials, and that the property in the construction passed to the State only after the goods used had accreted to the plant. The respondents, however, argued that the contract was divisible into supply of materials and labor, making the dealer liable to pay sales tax on the materials supplied.

2. Interpretation of the contract terms:
The Tribunal analyzed the terms of the agreement to determine its nature. The contract involved the manufacture, supply, and erection of vertical gates with hoisting arrangements. The contractor was responsible for design, fabrication, and installation, with separate rates for materials, labor, and carriage. The Tribunal emphasized that the execution of the contract was complete only upon successful testing against full water pressure, indicating that the contract was not simply for the sale of goods but included significant service components.

3. Passing of property in goods:
The Tribunal examined when the property in the fabricated gates and hoisting equipment passed to the contractee department. It concluded that the property passed only upon the completion of erection and satisfactory testing, not upon mere fabrication or delivery to the site. This indicated that the contract was not for the sale of goods as chattel qua chattel but was an indivisible works contract.

4. Applicability of sales tax under the Bengal Finance (Sales Tax) Act, 1941:
The Tribunal held that since the contract was an indivisible works contract, there was no sale of goods as such, making the supply of fabricated gates and equipment not exigible to sales tax under the Bengal Finance (Sales Tax) Act, 1941. The Tribunal relied on precedents such as Hindustan Aeronautics Ltd. v. State of Karnataka and Vanguard Rolling Shutters & Steel Works v. Commissioner of Sales Tax, which supported the view that works contracts involving significant service components are not subject to sales tax.

5. Consistency in appellate decisions:
The applicants argued that the appellate and revisional authorities should have followed the decision of a previous appellate authority that had held similar transactions under the same contract to be indivisible works contracts. The Tribunal agreed that the authorities below had erred in not following the previous finding, emphasizing the importance of consistency in judicial decisions.

Conclusion:
The Tribunal set aside the appellate and revisional orders, holding that the contract was an indivisible works contract and not subject to sales tax. The Tribunal directed the respondents to modify the assessment order and refund the sales tax realized from the applicants within four months. The application was allowed with no order as to costs.

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