2017 (2) TMI 958 - HC - VAT and Sales Tax

Validity of assessment order - demand of differential tax u/s 3G(3) of the U.P. Trade Tax Act - construction contract - transfer of material purchased by the assessee at concessional rate to contractor - whether such arrangement, permitting utilization of construction materials by contractor and adjustment of its consideration in the contractor s account, would constitute an act of sale , so as to bring it within the clutches of sub-section (2) of section 3G or not? Held that - the condition required to be fulfilled, so as to legitimately invoke provisions of sub-section (2) of section 3G of the Act, is that goods have passed on for consideration - in the present case also the goods have been transferred to the contractor and the amount payable for such goods have been adjusted from the account of the contractor. The contract of sale therefore is complete. The provisions of sub-section (2) of Section 3G of the Act therefore gets attracted. The order passed by the assessing authority under sub-section (3) of section 3G of the Act thus cannot be questioned. The demand of differential of tax imposed by the department, and affirmed by the tribunal, is in accordance with law, and the challenge laid to it fails - revision dismissed - decided against revisionist.

Issues Involved:
1. Liability for payment of differential tax under section 3G(3) of the U.P. Trade Tax Act.
2. Whether the transfer of goods to the contractor constitutes a sale.
3. Applicability of previous judgments to the present case.
4. Nature of proceedings under section 3G(3) of the Act.

Detailed Analysis:

1. Liability for Payment of Differential Tax under Section 3G(3) of the U.P. Trade Tax Act:
The primary issue in this case is the correctness of the tribunal's order, which held the assessee liable for the payment of differential tax under section 3G(3) of the U.P. Trade Tax Act. The assessee, a government entity, had purchased construction materials at concessional rates under section 3G(1) and transferred them to a contractor for construction purposes. The assessing authority treated this transfer as a sale, thereby invoking the provisions of sub-section (2) and (3) of section 3G, leading to the imposition of additional tax.

2. Whether the Transfer of Goods to the Contractor Constitutes a Sale:
The core question is whether the arrangement of transferring construction materials to the contractor and adjusting the value of these materials in the contractor's account constitutes a sale under the Act. The assessee argued that since the materials were used for a government project, the transfer did not amount to a sale. However, the tribunal and the assessing authority concluded otherwise, treating the transaction as a sale subject to tax.

3. Applicability of Previous Judgments to the Present Case:
The assessee relied on several judgments, including *M/s Oil and Natural Gas Commission vs. Commissioner of Sales Tax* and *M/s Modi Xerox, Rampur vs. Commissioner of Sales Tax*, to argue that the transaction did not constitute a sale. These judgments emphasized that mere adjustment of accounts does not amount to a sale. Conversely, the Standing Counsel cited judgments from the Apex Court, including *M/s N.M. Goel & Co. vs. Sales Tax Officer* and *Rashtriya Ispat Nigam Ltd. vs. State of Andhra Pradesh*, which supported the view that such transactions do constitute a sale when materials are transferred to a contractor and their value is adjusted in the contractor's account.

4. Nature of Proceedings under Section 3G(3) of the Act:
The final issue addressed was whether the proceedings under section 3G(3) are assessment proceedings. The Division Bench in *M/s Bharat Pumps and Compressors Ltd. Naini Allahabad vs. State of U.P.* clarified that the proceedings under section 3G(3) are not assessment proceedings but are orders demanding payment when the declaration or certificate is found to be false.

Conclusion:
The court concluded that the transfer of goods to the contractor, with the value adjusted in the contractor's account, constituted a sale under section 3G(2) of the Act. The judgments cited by the assessee were found distinguishable based on the facts of the present case. The court upheld the tribunal's order, affirming the demand for differential tax as lawful. Consequently, the revision petition was dismissed, and the demand for additional tax was validated.

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