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TMI Blog1996 (2) TMI 487X X X X Extracts X X X X X X X X Extracts X X X X ..... f the contractor on actual cost basis. The turnover relating to the supply of the material, viz., steel, cement and A.C. sheets for the assessment year 1981-82 was not subjected to sales tax by the assessing authority on the ground that the material was supplied for construction of its own buildings by the assessee-company. But the Deputy Commissioner (C.T.) revised the order of assessment in exercise of the power vested in him under section 20 of the Act and brought to tax an amount of Rs. 2,38,26,240 being the value of the said goods, viz., steel, cement and A.C. sheets. The assessee-company unsuccessfully pursued the matter before the Sales Tax Appellate Tribunal by filing the appeal which was dismissed on March 28, 1990. It is the correctness of that order of the Tribunal that is assailed in this T.R.C. (viz., T.R.C. No. 256 of 1990) and the correctness of similar orders are assailed in the other T.R.Cs. of this batch. Sri P. Sreenivasa Reddy, the learned counsel appearing for the petitioners in the first fourteen cases, and Sri S. Krishna Murthy, the learned counsel appearing for the petitioners in the last mentioned four cases, contend that the Tribunal dismissed the appeal ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that there is sale of goods supplied by the assesseecompany to the contractor. In that case the Supreme Court was considering whether supply of iron, steel and cement by the Public Works Department to the contractor against the deduction of prices of the material supplied from the final bill payable to the contractor, would constitute "sale" within the meaning of section 2(n) of the Madhya Pradesh General Sales Tax Act, 1958. There, clause (10) of the contract was relied upon to show that the supply did not constitute "sale". We shall advert to clause (10) presently. Here we would note the ratio laid down by the Supreme Court in that case. It was laid down that clause (10) of the contract indicated that a sale inhered from the transaction and that by the use or consumption of materials in the work of construction, there was passing of the property in the goods to the appellant from the Public Works Department and by appropriation and by the agreement, there was a sale from the Public Works Department to the appellant as envisaged thereunder. It will be apt to read clause (10) to the contract in that case, which is as follows: "Clause (10): If the specification or Schedule of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... letion of the rest of the work, the contractor shall be entitled to such extension of time as may be determined by the Engineer-in-charge whose decision in this regard shall be final." Referring to the judgment of a Bench of three Judges of the Supreme Court in Government of Andhra Pradesh v. Guntur Tobaccos Ltd. [1965] 16 STC 240 the Supreme Court pointed out, in the case of Goel Co. v. Sales Tax Officer [1989] 72 STC 368, that a contract for work, in the execution of which goods were used, might take one of the three forms, viz., (i) the contract might be for the work to be done for remuneration and for supply of materials used in the execution of the work for a price; (ii) the contract might be for work in which the use of the material was accessory or incidental to the execution of the work; and (iii) the contract might be for work and use or supply of materials, though not accessory to the execution of the contract, was voluntary or gratuitous. The first category of contract is a composite contract for work and sale of goods and the contract of the second category is for execution of work not involving sale of goods. Whether a contract falls in the first category or in the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ement as well as relating to return of surplus material by the contractor, recorded the finding that the terms of the contract indicated that the goods continued to vest in the assessee-company till they were utilised in the contracted work and that surplus materials after completion of work had to be returned and that only to the extent of the goods consumed, the amount was charged and recovered and not in regard to the entire supply. However, Sri P. Sreenivasa Reddy, the learned counsel for the petitioners in the first fourteen cases, has pointed out that there are six features which distinguish this case from Goel's case [1989] 72 STC 368 (SC). We may note those features here, viz., (i) the assessee-company is not bound to supply the materials; (ii) the contractors are bound to return the unused material; (iii) fixed recovery rates are mentioned irrespective of market price to be based on actual consumption; (iv) consumption, reported in excess of the prescribed norms, attracts penal recovery at 150 per cent of market value; (v) the VSP may reserve right to inter-transfer of raw steel issued from one contractor to another; and (vi) the contractor was bound to execu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he fabricator/contractor shall arrange to return all materials issued to him by the employer to the place/places specified by the employer, at his own cost. 41.0: Accounting of steel: 41.1: Steel shall be supplied to the fabricator/contractor in sizes available on cost recovery basis. The fabricator/contractor will have to make the best use of the sections supplied, most economically to avoid unnecessary wastage. The contractor shall maintain a cutting list and the same shall be open to the engineer for verification from time to time. 41.3: The total quantity of fabricated steel structures based on the approved DODLS plus 5 per cent (five per cent) of this fabricated quantity of steel structures (towards non-recoverable wastage, cut pieces, etc.) plus returned/accounted surplus steel in full sizes must be equal to the total quantity of raw steel issued by the employer, after due adjustment of the steel directly purchased and used in the works by the fabricator/contractor, if any. Any shortage of steel after accounting as above shall be treated as unaccounted steel. The cost recovery for the total raw steel issued by the employer to the fabricator/contractor shall be made ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... conditions in clause 6.26, extracted above, which says that wherever any materials for the execution of the contract are procured with the assistance of the employer (assessee-company) either by issue from employer's stock or purchase made under orders or permits or licences issued by the employer, the contractor shall use the said materials economically and solely for the purpose of the contract and not dispose them of without the permission of the employer and if required by the engineer shall return to the employer all surplus or unserviceable material that may be left with the contractor after the completion of the contract or at its termination for any reason whatsoever on being paid or credited such price as the engineer shall determine, having due regard to the initial cost and the present condition of the materials at the time of such return thereof and that the credit to be allowed to the contractor shall not exceed the amount charged to him excluding the departmental and storage charges, etc., if any. These reasons would be a complete answer to the aforementioned distinguishing features Nos. (i), (ii), (iii), (iv) and (vi) pointed out by the learned counsel. The only dist ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... duty-bound to return the unused material, i.e., cement, iron and steel on completion of the contract finally or otherwise he was liable for criminal breach of trust and penalty to the extent of twice the amount in terms of clause 33 of the contract. The relevant clause which fell for consideration of the learned Judge is not quoted in the judgment, so we cannot express any opinion on the interpretation of that clause. However, we would like to point out that if on true interpretation of the relevant clauses in the agreement it is found that supply of the goods to the contractor constitutes sale, the mere fact that he was bound to return the goods after completion of the construction work, on pain of payment of penalty or prosecution, will not alter the nature of the earlier sale transaction. It may be recalled that in Goel's case [1989] 72 STC 368 (SC) it was laid down that till the time of appropriation of the goods, they were the properties of the company (employer) and if they remain unused the company-employer was entitled to get back the same from the contractor. With respect to the learned Judge, we are unable to agree with the reasoning in that case and in our view that c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e laid down by engineer-in-charge from time to time. ............... Further such shall be subject to the following conditions: (i) Cost of all materials issued by owner shall be recovered in full from the contractor's dues under this contract. (ii) Materials will be issued only for permanent works and not for making templates, other temporary works, etc. ............... All the cement/steel shall be strictly accounted for by the contractor. In case of cement the permissible wastage shall be 3 per cent and in the case of reinforcements allowable wastages/scrap generated shall be 3 per cent (i.e., per cent unaccountable and 2 per cent accountable). ............... Any unused quantity of cement and steel not returned and wastage/ consumption beyond specified/agreed limits shall be charged at penal rate of 200 per cent (two hundred per cent) of issue rates in accordance with the provisions of general conditions of contract. The theoretical consumption of steel and cement required for the work will be calculated on the basis of approved drawings/joint measurements. In the case of cement the theoretical rates of consumption shall be decided by the engineer-in-charge in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... es, or permits and/or for criminal breach of trust......" We have gone through these clauses carefully. They are not materially different from the relevant clauses in the other T.R.Cs. extracted above. In our view these clauses would not militate against the conclusion that the contract of sale of the goods supplied by the company inheres in terms of the various clauses of or the conditions general and special of the agreement. In our view these clauses reinforce the above conclusion rather than detract from reaching that conclusion. For the aforesaid reasons, we see no merit in the T.R.Cs. They are accordingly dismissed but, in the circumstances of the cases, without costs. Petitions dismissed. ANSHUMAN SINGH, J.-This revision under section 11 of the U.P. Sales Tax Act, 1948 (hereinafter referred to as "the Act"), is directed against the judgment dated July 24, 1991, passed by the Sales Tax Tribunal, Saharanpur Bench, Camp Dehradun, relating to assessment year 1983-84 remanding the case back to the Deputy Commissioner (Executive). The assessee, Oil Natural Gas Commission, Dehradun, is a statutory body constituted under the Oil and Natural Gas Commission Act, 1959 (he ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ursuance of the agreement entered into with the contractors for the construction work of Commission on its own premises. At no stage the title to the materials so given to the contractors passed hence the supplies so made could not be termed "sale" legally particularly when the business of the assessee-Commission was not of cement and steel and as such the assessee-Commission could not be termed as "dealer" within the eye of law. Jurisdiction regarding initiation of proceedings under section 10-B of the Act was also challenged. It was further contended that in any case it could be a case of escaped turnover and could have been investigated under section 21 of the Act and not under section 10-B of the Act. Ultimately an order was passed by the Deputy Commissioner (Executive), Sales Tax, on December 15, 1989, remanding the case to the assessing authority for making a fresh assessment. The assessee feeling aggrieved against the aforesaid order preferred an appeal under section 10 of the Act before the Sales Tax Tribunal, Dehradun. The Tribunal by the impugned order dated July 24, 1991, has allowed the appeal of the assessee and modified the order of the Deputy Commissioner (Executiv ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or encourage the collection, maintenance and publication of statistics, bulletins and monographs; (gg) to promote and form companies in compliance with the requirements of the Companies Act, 1956, for any of the purposes aforesaid; (h) to perform any other function which is supplemental, incidental or consequential to any of the functions aforesaid or which may be prescribed." Besides taking into account the functions of the Commission it is also essential to have a glance at the relevant clauses of the agreement/contract entered into between the Commission and the contractors regarding the supply of materials which will ultimately be of paramount help in determining the nature of transaction as to whether the said transaction can be termed as business. Secondly whether it is a sale and the same can be exigible to sales tax. In this connection clauses 10, 11 and 33 of the contract appear to be relevant which are mentioned below. Under clause 10 of the said agreement/contract the materials and stores are to be supplied by the Commission to the contractors. The relevant part of the clause 10 reads as follows: "All materials as supplied to the contractors shall remain t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the market rate as the case may be and for all moneys, advantage or profits resulting or which in the usual course would have resulted to him by reason of such breach." A perusal of the aforesaid clause 33 of the contract makes it clear that there was no composite transfer of property inasmuch as the material which remained unused was required to be returned by the contractor to the Commission and if he fails to return then he shall be liable to criminal breach of trust and liable to Commission at double the rate of market of the said amount. Sri Bharatji Agarwal, learned counsel for the assessee on the basis of the terms of agreement/contract, relevant clauses of which have been quoted above, contended that the assessee was not carrying on any business of building construction nor any business of purchase and sale of cement and steel. He further contended that in view of section 14 of the Gas Act the assessee could not carry on any such business. It was also asserted that the ownership and title in respect of cement, iron and steel supplied by the assessee to the contractor always remained with the assessee and at no point of time there was any transfer of property for such ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l letters exchanged in the year 1973. This view of the Tribunal is based on no materials and does not appear to be correct. A perusal of the letter dated 26th October, 1979, indicates that it was issued for the purpose of clarifying clause 4 of the contract and to ensure proper utilisation of raw materials made available by the U.P. State Electricity Board to the assessee. The recovery had been made at the specified rates mentioned in the conditions of the contract from the various running bills. The aforesaid letter also clarified that the property in raw materials made available by the U.P. State Electricity Board to the assessee for the manufacture of components has all along been vested with the U.P. State Electricity Board and the assessee had no authority to sell/ dispose of/utilise for the purpose other than the manufacture of components. It was also made clear that this letter would form part of the contract. It is, therefore, apparent that till the relevant times the property in the raw materials made available by the U.P. State Electricity Board to the assessee vested with the U.P. State Electricity Board and not with the assessee. In this view of the matter as indicate ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Act. It has been further stated that clause 10 of the contract in the case of N.M. Goel Co. [1989] 72 STC 368 (SC); ST1 1988 SC 140 clearly establishes that there was complete transfer of property inasmuch as the materials which remained unused was not required to be returned by the contractor and it was to be returned only after the contractee requires it to return otherwise the contractor shall be the absolute owner of the material supplied to him. Such is not the position in the instant case as in the case in hand the contractor was, on the completion of the contract, duty bound to return the unused material, i.e., cement, iron and steel, etc., to the assessee-Commission failing which he was liable for criminal breach of trust and penalty to the extent of twice the amount in view of clause 33 of the contract referred to above. Moreover a perusal of the judgment of the Supreme Court in N.M. Goel Co. [1989] 72 STC 368; ST1 1988 SC 140 indicates that the Supreme Court has held that the question whether a particular transaction would be a sale or not would depend on the facts and circumstances of each case. In this connection I would like to refer a passage from the aforesaid ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... delivered is called the bailee." Learned counsel for the assessee also submitted that the proceedings under section 10-B of the Act are illegal and invalid in view of the language of section 10-B of the Act because on the basis of subsequent materials proceedings could be initiated by the assessing authority himself but no proceeding can be taken on the basis of the materials received after passing of the assessment order dated December 19, 1985. He submitted that the power under section 10-B of the Act are analogous to power of section 263 of the Income-tax Act under which the Commissioner of Sales Tax or the Deputy Commissioner (Executive), Sales Tax as well as Commissioner of Income-tax can only exercise jurisdiction on the basis of material on record of that particular order and cannot exercise jurisdiction of revision on the basis of material which were not before the assessing authority and which did not form part of that record of the order. In support of the said contention he has placed reliance on a decision of the Calcutta High Court in Ganga Properties v. Income-tax Officer [1979] 118 ITR 447. The Calcutta High Court while entertaining the writ petition under article ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r illegal or erroneous and uncalled for in the facts and circumstances of the case. A grievance has been raised on behalf of the assessee that the order of the Tribunal in remanding the case amounts to violation of the principle of natural justice. Therefore, I think the Tribunal was wholly justified in directing the Deputy Commissioner (Executive) to examine these documents for which the assessee will be afforded full opportunity to put forward its case regarding those documents and as such I am not inclined to interfere with the order of the Tribunal in so far as it directs the matter to be re-examined by the Deputy Commissioner (Executive). However, in view of the fact that according to the terms of the agreement entered into between the Commission and the contractor, the goods have been supplied to the contractor on specific rate for execution of the works contract, it is settled that the goods did not pass to the contractor and the same could not amount to sale within the meaning of section 2(h) of the Act. In the result the revision is disposed of with the direction that the Deputy Commissioner (Executive) will decide the case ignoring the observations made by the Tribuna ..... X X X X Extracts X X X X X X X X Extracts X X X X
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