2006 (11) TMI 216 - HC - VAT and Sales Tax

Summary

Issues Involved:
1. Whether the contract for the manufacture and supply of RCC Poles to the Tamil Nadu Electricity Board constitutes a "works contract" or a "sale of goods".
2. Interpretation of the terms "sale" u/s 2(n) and "works contract" u/s 2(u) of the Tamil Nadu General Sales Tax Act, 1959.

Summary:

Issue 1: Nature of the Contract
The primary issue was to determine if the contract between the petitioner and the Tamil Nadu Electricity Board for the manufacture and supply of RCC Poles was a "works contract" or a "sale of goods". The court examined the essence of the agreement dated 17-3-1990, which included the supply of raw materials like cement and steel by the Board, and the petitioner's responsibility for transport and storage. The agreement also specified that any excess materials and gunny bags must be returned to the Board after the completion of the work. The income-tax payable on the contract amount would be deducted as TDS, and any applicable sales tax would be borne by the Board.

Issue 2: Interpretation of "Sale" and "Works Contract"
To resolve the issue, the court referred to the definitions u/s 2(n) and 2(u) of the Tamil Nadu General Sales Tax Act, 1959. Section 2(n) defines "sale" as a transfer of property in goods for cash or other valuable consideration, while Section 2(u) defines "works contract" as an agreement for carrying out construction, manufacture, or other specified activities for valuable consideration. The court noted that the agreement expressly provided for the manufacture of RCC Poles using raw materials supplied by the Board, and the petitioner could not sell the finished product back to the owner of the raw materials. The court emphasized that the petitioner added only the value of work or labor, making it a "works contract".

Conclusion:
The court concluded that the contract was a "works contract" as defined u/s 2(u) of the TNGST Act. The views of the Sales Tax Appellate Tribunal, which had earlier held the contract as a "works contract", were upheld. The court set aside the order of the Tamil Nadu Taxation Special Tribunal, Chennai, and ruled that the petitioner was not liable to pay any penalty. Consequently, the related writ petitions were allowed, and the interim petitions were closed.