1999 (3) TMI 598 - HC - VAT and Sales Tax

Summary

Issues Involved:
1. Whether the supply of materials by the petitioner to its contractors constitutes a "sale" under the M.P. General Sales Tax Act, 1958.
2. The applicability of sales tax and penalties on the petitioner for the supply of materials to contractors.

Detailed Analysis:

Issue 1: Whether the supply of materials by the petitioner to its contractors constitutes a "sale" under the M.P. General Sales Tax Act, 1958.

The primary contention revolves around whether the supply of materials such as iron, steel, and cement by the petitioner to its contractors for construction purposes constitutes a "sale" under section 2(n) of the M.P. General Sales Tax Act, 1958.

- Petitioner's Argument: The petitioner argued that the transfer of materials to contractors was not a sale but a supply for the execution of construction works. The materials remained the property of the petitioner, and the cost was merely deducted from the contractors' bills. The petitioner referenced clause 15(b) of their contract, which stipulated that materials supplied by the corporation would be used only for contract purposes and any unused materials were to be returned to the corporation. They contended that this arrangement did not constitute a sale as there was no transfer of property in goods for consideration.

- Respondent's Argument: The respondents argued that since the petitioner supplied materials to contractors and charged a price for them, it constituted a "sale" under section 2(n) of the Act. They maintained that the Assistant Commissioner and the Additional Commissioner of Sales Tax correctly classified the transactions as sales.

- Court's Analysis: The court examined the terms and conditions of the contract, particularly clause 15(b), and compared it with similar cases such as Hindustan Steel Ltd. v. State of Orissa and Goel & Co. v. Sales Tax Officer. The court noted that the four elements constituting a sale (competent parties, mutual assent, transfer of property, and consideration) were present in the petitioner's transactions. The court emphasized that the purpose behind the supply of materials was to ensure quality and that the materials supplied remained the property of the corporation until used in the works.

The court concluded that the arrangement between the petitioner and the contractors constituted a sale, as it involved the transfer of property in goods for consideration, fulfilling the definition of "sale" under the Act.

Issue 2: The applicability of sales tax and penalties on the petitioner for the supply of materials to contractors.

- Assessment and Penalty: The Assistant Commissioner of Sales Tax assessed the tax payable by the petitioner at Rs. 10,36,891.30 and levied a penalty of Rs. 2,60,000 under section 17(3)(2) of the Act for not filing quarterly returns.

- Petitioner's Contest: The petitioner contested the assessment and penalty, arguing that there was no sale involved, and thus no liability for sales tax or penalty.

- Court's Decision: The court upheld the findings of the Assistant Commissioner and the Additional Commissioner of Sales Tax, affirming that the supply of materials constituted a sale and that the petitioner was liable for the assessed sales tax and penalty. The court found no merit in the petitioner's arguments and dismissed the petitions.

Conclusion:

The court held that the supply of materials by the petitioner to its contractors constituted a sale under the M.P. General Sales Tax Act, 1958. Consequently, the petitioner was liable to pay sales tax and penalties as assessed by the Assistant Commissioner of Sales Tax. The petitions were dismissed with no order as to costs, and the security amount, if any, was ordered to be refunded to the petitioner.