2006 (11) TMI 612 - HC - VAT and Sales Tax

Summary

Issues involved: Interpretation of section 2(h) of the U.P. Trade Tax Act, 1948 regarding the levy of tax on goods involved in the execution of works contract.

Summary:
The High Court of Allahabad heard two revisions under section 11 of the U.P. Trade Tax Act, 1948, challenging the Tribunal's order related to the assessment years 1988-89 and 1989-90. The applicant, a company engaged in designing and fabricating steel structures, argued that goods used in works contracts were not subject to tax as they were transferred to customers only upon completion of the entire work. The Standing Counsel contended that there was a deemed sale u/s 2(h) of the Act since the goods were used in works contracts. The Tribunal found that the goods purchased were not the same as those used in the works contract, denying the benefit of tax payment on raw materials.

The Court noted the constitutional amendment broadening the definition of sale to include the "value of goods involved in the execution of works contracts." It emphasized that sales occur when goods are incorporated in works contracts, not upon completion of the entire work. Referring to a precedent, it stated that property in goods used in construction passes to the owner when incorporated in the building, making the contractor liable for sales tax at that point. The Court rejected the applicant's argument that tax should not apply to structures made from locally purchased iron and steel, as the items used in the works contract were different and not taxed.

Ultimately, both revisions were dismissed by the Court, upholding the Tribunal's decision regarding the levy of tax on goods involved in works contracts.