2008 (11) TMI 643 - HC - VAT and Sales Tax

Whether there was sale of goods in view of the contract between the parties whereunder the custody and control of the goods remained with the PWD and goods were only used in the construction under the contract Held that - In the instant case by the use or consumption of material supplied in the work of construction, there was passing of property and by virtue of receipt of value of such transferred property by way of adjustment in bills the consideration has also passed which in our opinion satisfies the definition of sale in the local Sales Tax Act.

Issues Involved:
1. Liability of the petitioner to assessment orders for purchase tax under section 6C of the Bengal Finance (Sales Tax) Act, 1941.
2. Constitutional validity of levy of purchase tax under section 6C of the 1941 Act.
3. Interpretation of Clause 10 of the works contract regarding the supply of materials by the Government Departments.

Issue-wise Detailed Analysis:

1. Liability of the Petitioner to Assessment Orders for Purchase Tax:
The primary issue was whether the petitioner, a partnership firm engaged in executing works contracts, was liable to purchase tax for the periods of November 28, 1980, to March 31, 1981, and April 1, 1981, to March 31, 1982, under section 6C of the Bengal Finance (Sales Tax) Act, 1941. The petitioner argued that under Clause 10 of the works contract, the materials supplied by the Government were for the execution of the contract and not for sale, hence not liable to tax. The Tribunal analyzed Clause 10, which stated that materials supplied by the Government remained their property until used in the contract and any unused materials had to be returned. The Tribunal concluded that the petitioner was liable for purchase tax as the materials were supplied for a consideration, and their value was deducted from the contractor's dues.

2. Constitutional Validity of Levy of Purchase Tax:
The constitutional validity of the levy of purchase tax under section 6C was previously upheld by the Full Bench of the Tribunal in *Nepal Chandra Banerjee v. State of West Bengal* and affirmed by the Supreme Court in *Cooch Behar Contractors Association v. State of West Bengal*. The Tribunal's decision was based on the premise that the transfer of property in goods supplied by the contractee to the contractor for use in the execution of a works contract constituted a sale. This precedent was followed in the current case, affirming the constitutional validity of the purchase tax under section 6C.

3. Interpretation of Clause 10 of the Works Contract:
Clause 10 of the works contract was pivotal in determining the nature of the transaction. The clause specified that materials supplied by the Government were to be used exclusively for the contract, remained Government property until used, and any unused materials had to be returned. The Tribunal summarized that the materials were supplied for a specific purpose, their price was to be paid upon finalization of dues, and the contractor had no right to use them for other purposes. The Tribunal, relying on the Supreme Court's decision in *N.M. Goel & Co. v. Sales Tax Officer*, held that the supply of materials constituted a sale as the property in the goods passed to the contractor upon their use in the construction work, making the transaction liable to purchase tax.

Conclusion:
The High Court affirmed the Tribunal's judgment, dismissing the petitioner's application. The Court concluded that the Tribunal's decision did not suffer from any irregularity or illegality, and the issues raised by the petitioner were already settled by the Supreme Court. The Court upheld that the supply of materials by the Government to the contractor for consideration, as per Clause 10, constituted a sale and was liable to purchase tax under section 6C of the Bengal Finance (Sales Tax) Act, 1941.

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