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TMI Blog1995 (3) TMI 459X X X X Extracts X X X X X X X X Extracts X X X X ..... as been established to manufacture and supply fertilisers to the agriculture sector of the country. The company obtained provisional registration under section 8-B of the Act during the assessment year 1985-86 as it intended to establish its business of manufacture and sale of fertilisers in the State of Uttar Pradesh and to set up a plant by choosing its factory site near Bareilly. During the assessment year 1985-86 and the assessment year 1986-87 neither any purchase of the raw material was done nor any manufacture of fertiliser was done and consequently no sale of the fertiliser was done during these assessment years. The construction of the factory buildings and other buildings was undertaken through the contractors under specific agreements and written contracts. Under the terms of the contract the company had agreed to issue supply and had issued cement, iron and steel to the contractors for being used in the construction of the factory buildings, etc., without transferring property in these goods of cement, iron and steel. The company obtained a licence from the Government of India for purchasing the cement, iron and steel for being used in the construction of the factory bu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... earned standing counsel for the opposite party has asserted that the supply of cement, iron and steel by the company to the contractors for being used in the construction of factory building and other buildings amounted to a transaction of sale within the meaning of section 2(h) of the Act, and sales tax was liable to be paid as rightly assessed by the assessing authorities and confirmed by the appellate authorities. In support of his assertion he has relied upon the judgment of the honourable Supreme Court in the case of N.M. Goel Co. v. Sales Tax Officer [1989] 72 STC 368; 1990 UPTC 865 and a decision of this Court in the case of Executive Engineer, Electricity Civil Construction Division, UPSEB, Meerut v. Commissioner of Sales Tax 1994 UPTC 438. 6.. I have carefully perused these judgments cited by the learned counsel for the parties. Though these judgments are confined to the facts and circumstances of each case and the terms of the contract involved in the transaction, yet the principle of law is not disputed. According to the latest decision of the honourable Supreme Court in the case of N.M. Goel [1989] 72 STC 368; 1990 UPTC 865, a contractor of P.W.D. whose appeal was d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r building and came to the conclusion that the supply of the material to be used in the construction did not amount to sale and the prices were not subjected to tax. Similarly in the case of Modi Xerox 1992 UPTC 717, this Court came to the conclusion on the examination of the terms and the conditions of the contract of work that the supply of material for construction could not be treated as a sale and no tax was liable on the prices of the materials supplied. In the case of Ansal Properties and Industries Pvt. Ltd. 1989 UPTC 1366 also the goods supplied to the contractor in execution of work of the contract were not held as sale within the meaning of section 2(h) of the Act in view of the terms and conditions of the contract of work. I therefore proceed to examine the terms and conditions of the contract of work entered into by the company with the contractors in the present case. Relevant clauses pertaining to the supply of iron, steel and cement supplied by the company to the contractors are reproduced as follows: "1.1. The contractor shall at his own expense, provide all materials required for the works other than those which are to be supplied by owner. Adequate stocks o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion in the weight of cement bag issued to him. (h) The empty cement bags are non-returnable. 1.2.1.1. The rates quoted in the tender shall include the cost of these materials at the rates mentioned. Since the rates quoted in the tender are inclusive of the cost of materials supplied by the owner, their cost will be recovered from them on account bills of the contract at the said rates, progressively. 1.2.1.2. The contractor shall not have the option to refuse to take the delivery of materials offered to him. No claim on this account shall be entertained. 1.2.2. Issue of cement: The cement will generally be issued on weight basis and the lot received first will be issued first and the lot received later will be issued later. 1.2.2.3. In case of excess consumption, the recovery for the excess quantity beyond the permissible quantities shall be at twice the issue rate or the market rate of cement, whichever is higher. 1.2.2.5. Day-to-day account of cement: The day-to-day account of all receipts and issues of cement in each godown of the contractor shall be maintained separately by the contractor. These accounts shall be made available for inspection of the owner/ c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ices till such time that they are erected, aligned and fully installed in position, and handed over to the owner. In case the owner/consultant feels that arrangements made by the contractor are not adequate he shall so advise the contractor and the contractor shall promptly take corrective action. In case the contractor fails to take corrective action within a reasonable time, the owner on advice of the consultant shall take such corrective actions and recover the cost thereof from the contractor's bills." A perusal of these bare clauses in the agreement make it crystal clear that the supply of cement, iron and steel to the contractors was not by way of sale and the contractors received these goods only as a trustee to utilise the same in the construction of the buildings and to account for the proper consumption thereof in accordance with the terms of the agreement. The word "sale" has been defined by section 2(h) of the Act in the following terms: "(h) 'sale' with its grammatical variations and cognate expressions, means any transfer of property in goods (otherwise than by way of a mortgage, hypothecation, charge or pledge) for cash or deferred payment or other valuable consi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... from the Government of India to procure these essential items-cement, iron and steel only for the purpose of utilising the same in the construction of factory building, which was necessary as a first step for commencement of the business of manufacture and sale of fertilisers. The applicant was bound by the terms and conditions of the licence in obtaining the supply of cement, iron and steel from the factories authorised by the licence only and the contractors were required to obtain supplies from the owner's godown in the project site. In view of the nature of the business of the applicant registered under the Act there could not be even remote possibility of transfer of ownership on the goods of cement, iron and steel to the contractors for the specific job-work. The contractors were in fact bailees in respect of these goods received from the applicant under section 148 of the Contract Act and they were accountable in law and fact. Therefore, these three goods-cement, iron and steel supplied by the applicant to the contractors for the purpose of utilising the same in the construction of the factory building and other buildings cannot be treated as a sale. 10.. However the learn ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the project by unlawful attitude to fasten the liability on the undertaking without there being any business in the nature of manufacture of fertilisers. The public purpose to be achieved by the setting up of this project in the State should not have been defeated. The State was to gain in every respect if the undertaking was allowed to set up this plant smoothly and quickly so that it could commence its business of manufacturing fertilisers and supplying the fertilisers to the agriculturists of the State at the rates fixed by the Government and could help in the larger production of the agricultural goods. The State could of course charge sales tax on the actual business of selling the fertiliser within the State. The assessing authority or the appellate authority and the Tribunal have unfortunately overlooked the larger interest of the public and of the State in wrongly and illegally treating the supplies of cement, iron and steel to the contractors as a sale and have also committed error of law. 12. The reasons given by the Tribunal for treating the supply of iron, cement and steel in the present case are wholly untenable and liable to be rejected. The Tribunal has ref ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... contractors as a trustee and not by way of sale and therefore the argument of parity with N.M. Goel's case [1989] 72 STC 368 (SC) is uncalled for. Thus, the inference drawn by the Tribunal on the basis of the gunny bags and cutpieces that the ownership of the materials supplied has been passed on to the contractors, is wholly unwarranted and untenable. The judgment and order dated February 22, 1992 passed by the Tribunal in Second Appeal No. 311 of 1991 (85-86) and Second Appeal No. 800 of 1991 (86-87) cannot be sustained. 13.. In the opinion of this Court, the supplies of cement, iron and steel by the undertaking to the contractors for utilising the same in the construction of the factory buildings and other buildings at the site of the project do not amount to sale within the meaning of section 2(h) of the Act and do not fall within the definition of business as defined under section 2(aa) and dealer as defined by section 2(c) of the Act. No tax liability on the price of these goods supplied to the contractors is attracted under the Act. Therefore the legal question raised in this revision is accordingly answered. The S.T.R. No. 415 of 1992 is hereby allowed and the impugned ..... X X X X Extracts X X X X X X X X Extracts X X X X
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