1. These are seven references under Section 11 of the U.P. Sales Tax Act. As the questions to be answered are common all the references can be dealt with jointly.
2. It appears that seven applications for reference of certain questions of law to this Court were made by five firms which had been assessed to sales tax by the Sales Tax Officers concerned. All of them were building contractors who had obtained contracts for the construction of buildings and had in connection with those contracts used materials like bricks, wood, cement etc. In the case of some of these contractors the supply of the materials had been arranged for by the Public Works Department or by the Development Board. The value of the materials used in connection with those contracts had not been included in their turnovers by the contractors. The Sales Tax Officers had, therefore, issued notices of reassessment to these firms and assessed them on the value of these materials also taking the view that all these materials must be deemed to have been sold by the assessees to the persons for whom they made the contracted constructions. The assessees went up in appeal to the Judge Appeals, Sales Tax, and contended that the material supplied in connection with the construction which they had undertaken could not be considered to have been sold by the contractors and their value could not, therefore, be included in the turnover of these firms for the purposes of assessment of sales tax. The Judge Appeals did not agree with this contention and was of opinion that the building materials used in the construction should have been included in the turnover and duly assessed. He, however, sought to make a distinction between the materials which had been received through the P.W.D. and the Development Board and the materials which had not been obtained through these departments. He thought the former ought to be excluded from assessment. He, therefore, sent back the cases to the Sales Tax Officers for re-assessment keeping in view the distinction pointed out by him in his judgment. The matter was however taken up in revision to the Judge Revisions, Sales Tax, by the Commissioner of Sales Tax. The Judge Revisions confirmed the view taken by the Judge Appeals. The assessees then applied to the Judge Revisions requesting him to refer certain questions to this Court under Section 11 of the U.P. Sales Tax Act. These references were then made. The questions which have been thus referred to us for answer are these :-
(1) Whether there was sale by the contractors of the building materials used in construction ?
(2) Whether they (assessees) are dealers within the meaning of the U.P. Sales Tax Act ?
(3) Whether the turnover of building materials cannot be assessed separately from the labour charges, if their cost is not separately shown in the bills ?
(4) Whether the assessees were not liable to pay tax on the turnover of the building materials supplied through the Development Board ?
3. Till recently there was a sharp difference of opinion between the various High Courts on the main question covered by these references. Some of the High Courts had taken the view that even in works contracts or building contracts like those in question in these references the materials used could be held to have been sold and their value was on that account liable to be included in the turnover which was to be assessed. Other High Courts had taken a different view. Now the matter has been considered by the Supreme Court first in the case of The State of Madras v. Gannon Dunkerley and Co. (Madras) Ltd. A.I.R. 1958 S.C. 560, and then in the case of Firm of Messrs Peare Lal Hari Singh v. State of Punjab A.I.R. 1958 S.C. 664. Though both these cases were decided with reference to the Sales Tax Acts of States other than Uttar Pradesh, the principles laid down by their Lordships of the Supreme Court appear to be applicable to the references in hand also. It was clearly laid down in these cases that the expression 'sale of goods' in Entry No. 48 of the Second List of the Seventh Schedule of the Government of India Act, 1935, bears the same import as it does in the Sale of Goods Act, 1930, and that in a building contract there is no sale of materials as such. The State Legislature has, therefore, no power while legislating under Entry No. 48 aforesaid to impose a sales tax on the value of such building materials on the basis that such a sale is included or implied in the building contract. The U. P. Sales Tax Act was also passed in exercise of the power conferred by the same provision of the Government of India Act. Though in that Act an attempt has been made by the State Legislature to rope in building materials like those now in question by introducing in the definition of the word 'goods' in Clause 2(d) of the Act the words 'every material, article and commodity used in construction, fitting out, improvements or repairs of movable or immovable property', in view of what has been laid down by the Supreme Court in the cases aforementioned, in spite of this attempt such materials must remain exempt from liability to be assessed. The decision of the Supreme Court has thus really concluded the matter against the State and brought the controversy to a close. In view of it further discussion on the point appears to be unnecessary. The opinion of the Sales Tax Authorities that, the building materials used by the applicants in connection with their contracts were liable to be assessed cannot therefore be, upheld.
4. The distinction sought to be made by them between materials which had been arranged for by the Public Works Department or the Development Board and materials not so arranged for also becomes immaterial and unnecessary. Whatever may be the source for the supply of the materials they cannot be held to have been sold by the contractors.
5. Relying on certain observations made by the learned Judge in paragraph 48 of the judgment in Madras State v. Messrs Gannon Dunkerly and Co. (Madras) Ltd. A.I.R. 1958 S.C. 360, the learned counsel for the State tried to urge that the applicants, or at least some of them, may have filtered into two distinct and separate contracts, one for the transfer of materials for money and the other for being paid for services rendered, and contended that in that case the materials used would be liable to be taxed. The contracts entered into by the various applicants are, however, not on the record. Had there been any such distinct and separate contract for sale of materials in case of any of the applicants, it was sure to be filed on behalf of the State because it would have put the case of that applicant on an entirely different footing. From what we can gather from the judgment of the Sales Tax Authorities and the order of reference it appears that the contracts of all the applicants were composite contracts of the kind usually known as works contracts or building contracts and none of them expressly agreed to sell any materials. The observation relied upon cannot in the circumstances be of any help to the State in these cases.
6. The questions referred to this Court have however been framed by the referring authority in a general form and must accordingly be answered in the same form. Our answers to those questions are, there-lore, as follows:
(1) When contractors use building materials in connection with the constructions which they have undertaken to construct, unless there is a specific and distinct contract that such building materials are being sold, there is no sale of the materials.
(2) So far as the building or works contracts and the materials used in connection with those contracts are concerned, the contractors are not 'dealers' within the meaning of the U.P. Sales Tax Act because they cannot be held to have sold the materials.
(3) The value of the building materials used in connection with the construction contracts cannot be included in the turnover of the contracts unless by the contract of the parties such building materials are specifically contracted to be sold. The question whether they are or are not separately shown in the bills is immaterial.
(4) It is entirely immaterial whether the building materials used in connection with the contract were supplied through the Development Board or through the P.W.U. or not. The assessees at whose instance these references are made were not liable to pay tax on the value of the building materials they had used, in connection with their contracts.
7. As to costs, as the question was a very controversial one and before the decision of the Supreme Court neither of the two contending parties could be held to be entirely unjustified in its. respective stand, we think it will be fair if both the parties bear their own costs of these references. We, however, assess the fee of the Standing Counsel for all these references at a total sum of Rs. 200.