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Steelsworth Pvt. Limited Vs. Commissioner of Taxes - Court Judgment

LegalCrystal Citation
Subject;Sales Tax
CourtGuwahati High Court
Decided On
Case NumberSales Tax Reference Nos. 1 and 2 of 1973
Judge
AppellantSteelsworth Pvt. Limited
RespondentCommissioner of Taxes
Appellant AdvocateJ.P. Bhattacharjee, P.G. Baruah, B.P. Saraf and M.K. Sharma, Advs.
Respondent AdvocateA.M. Mazumdar, Sr. Government Adv. and B.M. Goswami, Adv.
Excerpt:
- - and (c) such other sales as may be prescribed ;(2) the amount of any debt proved to have been bad and written off on which tax has been paid ;(3) in respect of article specified below the per centum as shown against each item of the balance remaining after making the deductions admissible under clauses (1) and (2)- 1. luxury goods as specified 9.09 per centum......did not manufacture standard goods for general sale in the market. the assessee submitted that the goods purchased tax-free had been utilised by it in the execution of contract works and, therefore, it was wrong on the part of the assistant commissioner of taxes to include the value of the goods purchased tax-free in the net turnovers of the assessee for the two periods.6. a division bench of the board heard the appeals and by its judgment dated 19th may, 1969, rejected the assessee's appeals.7. thereafter the assessee submitted petitions before the board under section 32(1) of the act praying for reference to the high court three questions of law.8. the board by its order dated 16th december, 1969, rejected the petition for reference holding that no question of law arose out of the.....
Judgment:

M.C. Pathak, C.J.

1. The following question of law has been referred to the High Court under Section 32(4) of the Assam Sales Tax Act, 1947 (hereinafter referred to as the Act), by the Assam Board of Revenue (hereinafter referred to as the Board) :

Whether, on the facts and in the circumstances of the case, the Board of Revenue was correct in law in holding that the price of the goods specified in the dealer's certificate of registration as being intended for use in execution of contract and purchased by the dealer was liable to be included in the net turnover of the dealer in the instant case for the two periods ending 30th September, 1963 and 31st March, 1964, under the proviso to Section 15(1)(b)(i)(c) of the Assam Sales Tax Act, 1947, as in force on the relevant dates ?

2. Sales Tax Reference No. 1 of 1973 deals with the period ending 31st March, 1964 and Sales Tax Reference No. 2 of 1973 deals with the period ending 30th September, 1963.

3. The facts of the case may be briefly stated as follows :

The assessee is a private limited company. It carries on business at Tezpur as contractor and order supplier. It is a registered dealer under the Act, the registration No. being TEZ/939/A/P. By order dated 23rd March, 1966, the Superintendent of Taxes, Tezpur, made assessment for the periods ending 30th September, 1963 and 31st March, 1964, including Rs. 2,36,842 and Rs. 2,24,794 as the value of tax-free purchases under declaration under Rule 80 of the Assam Sales Tax Rules (hereinafter referred to as the Rules). The assessee purchased the materials worth these two amounts during the two periods tax-free under declaration for purpose of execution of contract in the State of Assam. The Superintendent of Taxes included these two amounts in the net turnovers of the assessee, as according to the Superintendent of Taxes, the assessee instead of using the materials purchased free of tax in the execution of contract, utilised the materials in manufacturing other goods and sold the finished products to the customers.

4. The assessee filed appeals against the said order of assessment before the Assistant Commissioner of Taxes, Gauhati, who rejected the appeals. From the order of the Assistant Commissioner of Taxes, the assessee took appeals before the Assam Board of Revenue.

5. The contention of the assessee before the Board was that the assessee was not a manufacturing concern, but a contractor pure and simple who received orders from customers and supplied things according to their specifications. The assessee in their factory at Tezpur did not manufacture standard goods for general sale in the market. The assessee submitted that the goods purchased tax-free had been utilised by it in the execution of contract works and, therefore, it was wrong on the part of the Assistant Commissioner of Taxes to include the value of the goods purchased tax-free in the net turnovers of the assessee for the two periods.

6. A Division Bench of the Board heard the appeals and by its Judgment dated 19th May, 1969, rejected the assessee's appeals.

7. Thereafter the assessee submitted petitions before the Board under Section 32(1) of the Act praying for reference to the High Court three questions of law.

8. The Board by its order dated 16th December, 1969, rejected the petition for reference holding that no question of law arose out of the Judgment dated 19th May, 1969.

9. The assessee then filed two applications before the High Court under Section 32(4) of the Act and these applications were numbered as Civil Rules 1(M) and 2(M) of 1970. The High Court by its order dated 1st August, 1972, called for a statement of the case on the above-mentioned question of law.

10. In its Judgment the Board has observed that 'the point for determination in the two appeals was whether the transactions entered into by the appellant (assessee) were purely works contract or contract for sale of goods. The fact that the appellant (assessee) did not sell ready-made goods but constructed them according to the customers' specifications would not necessarily mean that the contracts were for work and labour and not for sale of goods. If the core of the contract is work and labour, the transaction would be contract of work. If the essence of the contract is the construction of something to be sold to the customers, it would be a contract for sale'.

11. The Board then referred to the decision of the Gujarat High Court in the case of Sarvodaya Motor Works v. State of Gujarat [1966] 17 S.T.C. 261 and further observed as follows:

Therefore there is no doubt whatsoever that the appellant when he accepted orders for manufacture of the goods, he did so as a contract for sale of goods. The appellant was a manufacturing dealer or a producer-dealer. Since the transactions did not amount to work or labour contract, the appellant became liable to pay taxes on the value of the materials which he had purchased tax-free for use in the execution of contract but in fact used them in the manufacture of articles to be sold to the customers.

12. Section 15 of the Act, as amended and applicable to the case, is quoted below :

15. Net turnover.-The net turnover shall be determined by deducting from a dealer's gross turnover during any given period-

(1) his turnover during that period on-

(a) the sale of goods exempted under Section 6 and Section 7;

(b) sale to a registered dealer of-

(i) goods specified in the purchasing dealer's certificate of registration as being intended by him for-

(a) resale in the State, or....

(c) use in the execution of any contract,

(ii) containers and other materials for the packing of such goods : Provided that the goods which are purchased free of tax and are used by a dealer for purposes other than those specified in his certificate of registration, the price of such goods so utilised shall be included in his net turnover; and

(c) such other sales as may be prescribed ;

(2) the amount of any debt proved to have been bad and written off on which tax has been paid ;

(3) in respect of article specified below the per centum as shown against each item of the balance remaining after making the deductions admissible under Clauses (1) and (2)-

1. Luxury goods as specified 9.09 per centum.

in Schedule I

2. Declared goods 1.96 per centum.

3. Ready-made garments made of

handloom cloth or cloth on

which additional excise duties

have been paid 0.99 per centum.

4. Other goods 3.84 per centum.

13. The original Section 15 of the 1947 Act stands as above after the amendments by Assam Act 4 of 1951, Assam Act 10 of 1957, Assam Act 6 of 1958, Assam Act 13 of 1960 and Assam Act 5 of 1963.

14. A dealer under the Act is registered either under Section 9 or Section 10 of the Act. A dealer registered under Section 9 or Section 10 of the Act is granted a certificate of registration as provided under Section 12 of the Act. under Rule 11 of the Rules, the certificate of registration under Section 12 is granted in form I-A.

15. In the instant case, M/s. Steelsworth Pvt. Limited has been registered as a dealer under Section 9 of the Act and the certificate of registration bears No. TEZ/939/A and a copy of the certificate is found at pages 31-33 of the paper book. From the registration certificate it is found that the assessee-dealer deals in manufacturing (iron goods), repairing machinery parts, wholesale and retail distribution and contracting. Under the column 'Goods sold after manufacture or production otherwise' are found : tanks, trailers, gates and greenleaf shifter.

16. Under Clause (2) in the certificate of registration (form I-A), it is found as follows :

(2) The sale of the following classes of goods to this dealer and for the purposes mentioned hereunder and the sale of tea including containers thereof in auction at Gauhati as specified in Rule 5 will be free of tax.

17. Column 1 contains 'For resale in the State', column 2 contains 'For use in execution of contract in the State' and column 3 contains 'For use as containers of packing materials of goods, the sales of which are taxable in the State'. Under the column 'For use in execution of contract in the State', the following are added with effect from 1st April, 1962 :

Zinc, whitemetal, solders, coppers, hardwares, millstores, aluminium sheets, hardware stores, oxygen, acetylene gases, belting, jointing solution, brass sheets, rods and pipes.

18. It was submitted on behalf of the assessee before the Board that the assessee was not a manufacturing concern but a contractor, pure and simple, who receives orders from customers and supplies things according to their specifications. That the goods worth Rs. 2,36,842 and Rs. 2,24,794 were purchased tax-free under declaration for use in the contract work were actually used by the assessee in the execution of contracts entered into by the assessee with different customers. That the assessee in its factory at Tezpur did not manufacture standard goods for general sale in the market but obtained orders from customers for construction of iron gates, water tanks, etc., strictly according to the specifications cited by them. Thus it was contended on behalf of the assessee that the goods purchased tax-free were utilised by the assessee in the execution of contract works and, therefore, the taxing authority erred in law in including the value of goods purchased tax-free in the net turnovers of the assessee for the periods in question.

19. On behalf of the department it was submitted that the assessee was a manufacturer and not a contractor. That although the assessee manufactured goods according to the specifications given by the customers, the fact remained that there was sale of the finished products to the customers and thus the assessee was a manufacturing dealer and, as such, he could not escape the liability of the payment of tax on the value of the goods which he had purchased tax-free allegedly for the purpose of execution of contracts. It was submitted on behalf of the department that since goods purchased tax-free were used for manufacturing purpose, the value of such goods were correctly added to the net turnovers of the assessee during the periods in question.

20. The assessee purchased goods worth Rs. 2,36,842 and Rs. 2,24,794 as tax-free under declaration under Rule 80 of the Rules. This is in accordance with the provisions of Section 15(1)(b)(i)(b), which reads as follows :

15. Net turnover.-The net turnover shall be determined by deducting from a dealer's gross turnover during any period-

(1) his turnover during that period on-

(a) ...

(b) sale to a registered dealer of-

(i) goods specified in the purchasing dealer's certificate of registration as being intended by him for-

(a) ...

(b) use in the execution of any contract.

21. So under the above provision, the assessee, who is a registered dealer, purchased the goods in question in the two periods in question tax-free. Now the proviso to Section 15(1)(b) lays down that if the goods which are purchased free of tax and are used by a dealer for purposes other than those specified in his certificate of registration, the price of such goods so utilised shall be included in his net turnover.

22. Under the above provision the Superintendent of Taxes has included the aforesaid two amounts in the net turnovers of the assessee. The assessee purchased these articles tax-free for use in execution of contract in the State. So if these articles are not utilised in the execution of contract as specified in the certificate of registration, the two amounts in question would be necessarily included in the net turnovers of the assessee. But if the articles so purchased tax-free were utilised in execution of contract as stated in the registration certificate, then these amounts could not be included in the net turnovers of the assessee. The assessee's contention is that they have utilised these goods in preparing iron gates, water tanks, etc., according to the specifications as ordered by the customers. According to the assessee, the customers give specifications of iron gates, water tanks, etc., place orders and then in pursuance of those orders the assessee prepares and constructs those iron gates, water tanks, etc., with the materials purchased tax-free and thus the materials, it is submitted, purchased tax-free, are really used in execution of the contracts or orders placed by the customers.

23. For proper appreciation of this submission we are required to consider the definition of 'contract' as laid down in the Act, which we find in Section 2(2) of the Act and it reads as follows :

2. (2) 'contract' means any agreement for carrying out for cash or deferred payment or other valuable consideration-

(a) the preparation, construction, fitting out, improvement or repair of any movable property, or of any building, road, bridge or other immovable property, or

(b) the installation or repair of any machinery affixed to a building or other immovable property.

24. Thus, it is found that under the Act 'contract' means any agreement for carrying out the preparation or construction of any movable property for cash or deferred payment or other valuable consideration. When a customer places an order with the assessee for an iron gate, for example, with specifications, that is, specifying the size, design, materials, etc. and when the assessee prepares the iron gate in pursuance of that order according to the specifications given by the customer, it is found that there is an agreement between the customer and the assessee for carrying out the preparation and construction of the iron gate according to the specifications, for cash or deferred payment. Thus such an agreement is covered by the definition of contract as laid down in Section 2(2)(a) of the Act. So when the materials purchased tax-free are used in carrying out the preparation and construction of the iron gates, water tanks, etc., for cash or deferred payment, they are used in execution of contract as defined under the Act. That being the position, the proviso to Section 15(1)(b) is not attracted in the instant case and the two amounts in question cannot be included in the net turnovers of the assessee taking resort to the proviso in question.

25. On behalf of the department we have been referred to the definition of 'sale' as found in Section 2(12) of the Act, which reads as follows :

2. (12) 'sale' with all its grammatical variations and cognate expressions means any transfer of property in goods by any person for cash or deferred payment or other valuable consideration and includes a transfer by separate agreement and for money consideration of goods involved in the execution of a contract, but does not include a mortgage, hypothecation, charge or pledge. It also includes a transfer of goods on the hire-purchase or other instalment system of payment, notwithstanding the fact that the vendor may retain the title in the goods as a security for payment of the price.

26. According to the definition of 'sale' as found in Section 2(12) of the Act, a transfer by separate agreement and for money consideration of goods involved in the execution of a contract is also a sale.

27. It is thus submitted on behalf of the department that in the instant case when there is a contract for making of an iron gate, for example, there is an agreement of transfer for money consideration of the goods involved in the execution of the contract, that is, the making of the iron gate. It is also submitted on behalf of the department that in view of the decisions in Pandit Banarsi Das Bhanot v. Slate of Madhya Pradesh [1958] 9 S.T.C. 388 (S.C.), which followed the decision in State of Madras v. Gannon Dunkerley & Co. (Madras) Ltd. [1958] 9 S.T.C. 353 (S.C.), it would be for the authorities under the Act to determine whether the agreement in question is, on its true construction, a combination of an agreement to sell and an agreement to work and if they come to the conclusion that such is its character, then it will be open to them to proceed against that part of it which is a contract for the sale of goods and impose tax thereon.

28. This may be a sound submission on the basis of the definition of 'sale' as given in Section 2(12) of the Act. But, considering the proviso to Section 15(1)(b), the position becomes a bit difficult.

29. In the instant case, the proviso has been utilised and for that purpose it must be established that the goods purchased tax-free were used by the dealer for the purposes other than those specified in his certificate of registration. According to the certificate of registration of the assessee the goods in question were purchased for use in execution of contract in the State. The definition of 'contract', as quoted hereinabove, makes it clear that the use of the goods purchased tax-free have to be accepted as used for the purpose of execution of the contract as specified in the registration certificate. That being so and, in the facts and circumstances of the present case and as the definition of 'contract' stands in the Act, the proviso cannot be utilised in the instant case for including the two amounts in question in the net turnovers of the assessee.

30. The words 'by separate agreement and for money consideration of' in the body of Clause (12) were substituted for the words 'of property in' by Assam Act 18 of 1959 with effect from 1st April, 1959.

31. The Judgment in State of Madras v. Gannon Dunkerley & Co. (Madras) Ltd. [1958] 9 S.T.C. 353 (S.C.) was delivered on 1st April, 1958 and the Judgment in Pandit Banarsi Das Bhanot v. State of Madhya Pradesh [1958] 9 S.T.C. 388 (S.C.) was delivered on 3rd April, 1958.

32. In view of the above-mentioned decisions of the Supreme Court and the amendment of the definition of the word 'sale' with effect from 1st April, 1959, as noted above, there is scope for the taxing authority to consider whether such an agreement is a combination of an agreement to sell and an agreement to work and if the taxing authority comes to the conclusion that it is such, then it may be open to the taxing authority to proceed against that part of it which is a contract for sale of goods and impose tax thereon.

33. But, in the present case, the hurdle has been created by the definition of the term 'contract' as found in Section 2(2) in the statute book.

34. Since, in the instant case, the goods purchased tax-free were used for the execution of contract as defined under the Act, the proviso to Section 15(1)(b) is not available.

35. In the circumstances, we hold that on the facts and in the circumstances of the case, the Board of Revenue was not correct in law in holding that the price of the goods specified in the dealer's certificate of registration as being intended for use in execution of contract and purchased by the dealer tax-free was liable to be included in the net turnovers of the dealer for the periods ending 30th September, 1963 and 31st March, 1964, under the proviso to Section 15(1)(b)(i)(b) of the Assam Sales Tax Act, 1947, as in force on the relevant dates.

37. In the result, the question of law referred is answered in the negative and against the department.

36. The reference is answered accordingly. We make no order as to costs.

D. Pathak, J.

37. I agree.


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