2006 (4) TMI 470 - AT - VAT and Sales Tax

Issues Involved:
1. Legality of charging sales tax on the transaction.
2. Petitioner's right to move the Tribunal.
3. Nature of the transaction: sale or works contract.
4. Inclusion of free materials supplied by the petitioner in the sales tax calculation.

Detailed Analysis:

1. Legality of Charging Sales Tax on the Transaction:
The petitioner, a registered dealer under the West Bengal Sales Tax Act, 1994, and the West Bengal Value Added Tax Act, 2003, placed a purchase order with Texmaco Ltd. for manufacturing and supplying three oxygen buffer vessels. The petitioner supplied some raw materials, and Texmaco manufactured the vessels as per the petitioner's design. Texmaco charged sales tax on the entire invoice price, which the petitioner paid. The petitioner later contended that no sales tax was payable as the transaction was a works contract and not a sale within the definition of "sale" under section 2(30) of the Act of 1994. The petitioner raised this issue with Texmaco, which refused to stop charging sales tax without an order from the assessing authority. The petitioner then approached the assessing authority, claiming that Texmaco was indulging in unjust enrichment by charging sales tax on the invoice price of the vessels.

2. Petitioner's Right to Move the Tribunal:
Mr. Mondal, the learned State Representative, questioned the petitioner's right to move the Tribunal, arguing that sales tax is deposited by the seller and the buyer has no cause of action against the State or sales tax authorities. He also pointed out that the petitioner was not a party in the assessment proceedings or the appeal filed by Texmaco. The Tribunal, however, held that the petitioner, being the party who actually suffers the tax, is directly aggrieved and thus has the standing to move the Tribunal under section 8 of the West Bengal Taxation Tribunal Act, 1987.

3. Nature of the Transaction: Sale or Works Contract:
The petitioner claimed that the transaction was a works contract and no sales tax was payable. The Tribunal analyzed the agreement between the petitioner and Texmaco, noting several features:
- The order was described as a "purchase order."
- The petitioner was described as the purchaser and Texmaco as the manufacturer.
- The consideration was described as the price, and the total price of the vessels was mentioned.
- Central sales tax was explicitly mentioned as payable.
- Terms of payment indicated a sale transaction.
- Texmaco was described as the vendor in the delivery schedule.
- The petitioner supplied only specific materials, while all other materials were supplied by Texmaco.

The Tribunal referred to various Supreme Court decisions, including Commissioner of Commercial Taxes v. Hindustan Aeronautics Ltd., State of Gujarat v. Variety Body Builders, and Union of India v. Central India Machinery Manufacturing Co. Ltd., to determine the nature of the transaction. The Tribunal concluded that the transaction was a sale and not a works contract, as the property in the materials and the finished product belonged to Texmaco until delivery to the petitioner.

4. Inclusion of Free Materials Supplied by the Petitioner in the Sales Tax Calculation:
The Tribunal noted that Texmaco charged sales tax on the total amount, including the value of the materials supplied free by the petitioner. The Tribunal opined that the price/value of the materials supplied free by the petitioner should not have been included in the sale price. However, the Tribunal did not express a final opinion on this matter, as several factual aspects needed consideration. The Tribunal directed the petitioner to raise this issue before the assessing authority of Texmaco, which should consider it and pass a reasoned order within three months. If it is found that no sales tax was payable on the value of the materials supplied free by the petitioner, the petitioner should approach the Commissioner under section 37(3) of the 1994 Act for a refund of the excess tax realized by Texmaco and deposited with the Government.

Conclusion:
The Tribunal held that the disputed transaction was a sale transaction and not a works contract. It directed the petitioner to raise the issue of the inclusion of the value of free materials in the sales tax calculation before the assessing authority of Texmaco. If excess sales tax was realized, the petitioner should seek a refund from the Commissioner of Commercial Taxes, West Bengal.

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