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TMI Blog2006 (11) TMI 601X X X X Extracts X X X X X X X X Extracts X X X X ..... ing the course of such operation necessarily several vehicles were utilised by the contractors. The obligation of the respondent and the contractors has been recorded under a term of contract. Several terms and conditions and covenants have been agreed upon, inter alia, between them. One of the covenants in the agreement dated April 1, 1997 binding the parties is that the respondent would supply diesel for consumption by the contractors during the use of the vehicles for mining operations. Supply of diesel is subject to payment of costs of the diesel by the consumer, namely, contractors. Such amount quantified will be deducted from and out of the amount payable by the respondent-company to the contractors for the mining operation conducted by it. The interim return covered by the taxation department reveals certain aspects indicating evasion of tax. The assessment which was done under section 12A of the Act was initially at Rs. 11,25,96,024 and Rs. 10,73,379 for the assessment year 1997-98 and at Rs. 11,44,69,065 and Rs. 12,27,759 for the assessment year 1998-99; at Rs. 23,05,55,306 and Rs. 21,20,421 for the assessment year 1999-2000 and at Rs. 9,86,61,276 and Rs. 4,49,270 for th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ax becomes liable. If the diesel supplied to the contractors was locally purchased the diesel could be construed as having suffered tax. But the diesel supplied by the respondent to the contractor is from inter-State purchase, which has not suffered tax, consequently the State tax becomes liable on second sale of diesel after initial purchase in inter-State sale. This aspect has not been appreciated by the Appellate Tribunal. Our attention was drawn to the reasoning made by the Tribunal in paras 12 and 19 of its order, which is relevant and reads thus: "12. The authorities below have not disputed the quantity and value of diesel purchased by the appellant and supplied to the various contractors. Such being the case the allegation that the appellant has not disclosed the turnover wilfully to evade tax is not sustainable. Further the total supply of diesel to the contractor in each assessment year is less than the quantity of diesel purchased locally. It is not the case of the authorities below that at any point of time the supply exceeded the purchase of diesel from local registered dealers. Therefore, the benefit of doubt should be given to the appellant and to be concluded ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hall be bound to procure and shall be supplied such material and stores as are from time to time required to be used by him for the purposes of the contract only, and the value of the full quantity of materials and stores to supply at the rates specified in the said Schedule of materials may be setoff or deducted from any sums then due or thereafter to become due to the contractor under the contract or otherwise, or against or from the security deposit, or the proceeds or sale thereof if the same is held in Government securities, the same or a sufficient portion thereof being in this case sold for the purpose". The apex court dismissing the appeal held thus: "(i) that since the PWD was not a registered dealer the presumption under section 6(c) applied, that the entry of the goods had been effected by the appellant into the local area before they were purchased by the appellant; (ii) that in order to attract entry tax not only the property in the goods had to pass from the PWD to the appellant but there had to be an independent contract--separate and distinct--apart from the mere passing of the property: mere passing of property from the PWD to the appellant would not su ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... agreement it was found that supply of the goods to the contractor constituted sale, the mere fact that it was bound to return the goods after completion of the construction work, on pain of payment of penalty or prosecution, would not alter the nature of the earlier sale transaction." Smt. Sujatha, learned Government Pleader, distinguished the judgment of this court in the case of Bangalore Water Supply and Sewerage Board, Bangalore v. State of Karnataka reported in [1999] 46 Kar LJ 1. Finally, she relied on the unreported decisions of this court in S.T.R.P. Nos. 60 and 61 of 2002 dated June 23, 2004. Per contra, the learned counsel appearing for the respondent would contend that in the instant case contractual obligations cast upon the respondent required him to supply diesel to the contractors for consumption during the utilisation of the vehicles and machineries in mining operations which was the purpose of engaging the contractors. The contractors obliged under the contract to conduct mining operations had perforce to utilise the vehicle in the remote area where the availability of fuel was difficult. To mitigate the difficulties and unnecessary waste of time in procurin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at the respondent and its contractors have entered into bilateral agreement and on their own volition agreed upon specific term that the respondent would supply to the contractors diesel for consumption for the vehicles and machinery used in mining operation by contractors. It is pertinent to note that the costs of the diesel so supplied is recoverable from the contractors from out of the amount payable to the contractors for the works contract. In other words, supply of diesel is not for the vehicle and machines owned by the respondent but owned by the contractors in the mining operations for which the contract has been entered into. When the costs of the diesel is recoverable and does not form part of any incentive to the contract, the property, i.e., diesel, undoubtedly passes on to the contractor and they are consumers. The definition of "sale" as incorporated in the Sales Tax Act, undoubtedly, signifies that with all its grammatical variations and cognate expressions sale means every transfer of the property in goods other than by way of goods mortgaged, hypothecated or pledged by one person to another in the course of trade or business for cash or for "deferr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... -State purchase, necessary information as to self-consumption of inter-State diesel only by the respondent for its bona fide own use, is not established. Further, it is not established with acceptable evidence before the assessing authority that the respondent-assessee's requirement of diesel was less or equivalent to inter-State diesel purchased. Had the assessee been able to establish that inter-State diesel has been utilised for its own use, it was possible to take a view based on the statement of accounts furnished. That has not been done by the respondent-assessee. The Tribunal, which has taken into consideration plea of the respondent appears to have weighed it in its favour only on the basis of the decision of this court in the case of Bangalore Water Supply and Sewerage Board, Bangalore v. State of Karnataka reported in [1999] 46 Kar LJ 1. In this regard, it is necessary to mention that this court in the said decision took note of the fact that the items like iron, steel, cast iron pipes and fittings, PVC pipes and fittings, etc., purchased by the board from registered dealers, for use in execution of its work had not passed on to the contractor under terms of the cont ..... X X X X Extracts X X X X X X X X Extracts X X X X
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