1991 (12) TMI 291 - HC - VAT and Sales Tax

Summary

Issues Involved:
1. Whether the materials supplied by the Commission to the contractors amounted to a sale within the meaning of "sale" as defined under section 2(h) of the U.P. Sales Tax Act, 1948.
2. Whether the supply of cement, steel, etc., made by the Commission to the contractors could be eligible for sales tax.
3. Jurisdiction regarding initiation of proceedings under section 10-B of the Act.
4. Whether the Tribunal's remand order violated the principles of natural justice.

Issue-wise Detailed Analysis:

1. Whether the materials supplied by the Commission to the contractors amounted to a sale within the meaning of "sale" as defined under section 2(h) of the U.P. Sales Tax Act, 1948:

The core issue revolved around whether the transfer of materials like cement and steel from the Commission to the contractors constituted a sale. The Commission argued that the materials supplied were not sold but were provided for construction purposes, with ownership and title remaining with the Commission. The relevant clauses of the contract (Clauses 10, 11, and 33) were examined to determine the nature of the transaction. Clause 10 indicated that materials supplied remained the absolute property of the Commission. Clause 33 emphasized that unused materials had to be returned, and failure to do so would result in penalties. The court referenced the case of Hindustan Housing Factory [1989] 75 STC 233, which supported the view that if ownership and title remained with the supplier, the transaction did not amount to a sale.

2. Whether the supply of cement, steel, etc., made by the Commission to the contractors could be eligible for sales tax:

The court considered whether these supplies could be taxed under the U.P. Sales Tax Act. The Commission contended that since there was no transfer of property, the transaction could not be termed a sale and thus was not eligible for sales tax. The court agreed, citing the Hindustan Housing Factory case, which established that if materials supplied for construction remained under the ownership of the supplier and were merely provided for the execution of a contract, the transaction did not constitute a sale.

3. Jurisdiction regarding initiation of proceedings under section 10-B of the Act:

The Commission challenged the jurisdiction of the Deputy Commissioner (Executive) to initiate proceedings under section 10-B, arguing that the proceedings should have been conducted under section 21 for escaped turnover. The court noted that section 10-B allows for revision of orders based on the materials on record at the time of the original order. The Calcutta High Court's decision in Ganga Properties v. Income-tax Officer [1979] 118 ITR 447 was referenced, which held that revision jurisdiction could only be exercised based on materials on record of the original order. The court found that the initiation of proceedings under section 10-B was not justified based on subsequent materials.

4. Whether the Tribunal's remand order violated the principles of natural justice:

The Commission argued that the Tribunal's order to remand the case for examination of specific documents without prior notice violated the principles of natural justice. The court acknowledged this concern, emphasizing that the Tribunal should have given the Commission an opportunity to present its case regarding the documents. However, the court found the remand itself to be justified, as it allowed for a thorough examination of the documents with due notice to the parties. The court directed the Deputy Commissioner (Executive) to decide the case afresh, applying the principles laid down in Hindustan Housing Factory and Ansal Properties 1989 UPTC 1366, while ignoring the Tribunal's specific observations before the operative portion of its judgment.

Conclusion:
The revision was disposed of with directions to the Deputy Commissioner (Executive) to re-examine the case, considering the principles established in relevant case law and ensuring due process. The court emphasized that the materials supplied did not constitute a sale and were not eligible for sales tax, and it underscored the necessity of adhering to principles of natural justice in the proceedings.