G.P. Singh, C.J.
1. By this petition under Article 226 of the Constitution, the petitioner seeks quashing of the order dated 14th June, 1976, passed by the Sales Tax Officer, Durg, and the order of the Deputy Commissioner dated 18th May, 1977, passed in revision.
2. The petitioner fabricates iron and steel goods which are used as spare parts in the Bhilai Steel Plant. The petitioner entered into various contracts with the plant for supply of fabricated goods for the period from 1st April, 1972, to 31st March, 1973. The petitioner did not file any return for the first and second quarters but it filed returns for the third and fourth quarters under the M. P. General Sales Tax Act, J.958, In the assessment proceedings before the Sales Tax Officer, the petitioner showed sales of Rs. 2,10,416.62. The petitioner also disclosed that he received Rs. 2,36,100.44 as labour charges. The labour charges were said to have been received by the petitioner on the basis that the transactions relating to them were not contracts of sale of goods but contracts for work and labour. The Sales Tax Officer in his order dated 14th June, 1976, did not accept that any of the contracts entered into by the petitioner with the Bhilai Steel Plant was a contract for work and labour. The aforesaid labour charges were also taken to be price received on sale of goods and on the total turnover sales tax at the rate of 7 per cent amounting to Rs. 31,200.81 was imposed. Purchase tax of Rs. 600 was also imposed. The Sales Tax Officer further imposed penalty of Rs. 4,000 under Section 17(3) and Rs. 50 under Rule 69-A. In appeal before the Deputy Commissioner, the petitioner again contended that the contracts relating to Rs. 2,36,100.64 shown as labour charges were not contracts of sale of goods but contracts for work and labour. This contention was accepted to the extent of Rs. 90,000. The second contention of the petitioner before the Deputy Commissioner was that it was entitled to be taxed at the reduced rate of 1 per cent under the notification dated 20th March, 1983, issued under Section 12 of the Act. The petitioner filed the necessary declarations before the Deputy Commissioner. These declarations which the petitioner filed related to sales of the turnover of Rs. 2,10,416.62. The Deputy Commissioner did not accept the contention of the petitioner on the view that declarations could not be admitted in revision (sic) and they ought to have been filed before the assessing authority.
3. The learned counsel for the petitioner first contended before us that the Deputy Commissioner was wrong in holding that the contracts relating to the labour charges disclosed by the petitioner were contracts of sale of goods. We have already stated that the Deputy Commissioner accepted the petitioner's contention partly and he held that the contracts relating to the labour charges to the extent of Rs. 90,000 were contracts for work and labour. The Deputy Commissioner examined all the contracts. He found that in certain of the contracts the material was supplied by the Bhilai Steel Plant to the petitioner for fabrication free of cost and in certain other cases it was supplied on cost recovery basis. The Deputy Commissioner held that in those cases where the material was supplied free of cost the contract was purely for work and labour; whereas in those cases, where the, material was supplied on cost recovery basis, the fabricated goods were really sold by the petitioner to the Bhilai Steel Plant. In our opinion, the reasoning of the Deputy Commissioner is sound. It is not in dispute that in those cases where the petitioner purchased the material from other sources and supplied fabricated goods to the plant, the transactions were sales. Similarly, in those cases also where the petitioner purchased the material directly from the plant and supplied fabricated goods, the supply of fabricated goods amounted to sale of such goods to the plant by the petitioner. The point to be noted is that the material supplied by the plant to the petitioner on cost basis became the property of the petitioner before it was fabricated and so the contract for supply of fabricated goods was in the nature of sale. But in cases where the material was supplied to the petitioner free of cost, the property in the material remained in the plant when it was fabricated and so the contract of supply of fabricated goods in such cases was contract for work and labour. The Deputy Commissioner having applied the correct test, we do not think that any ground is made out for interference on this point.
4. The learned counsel for the petitioner next submitted that the Deputy Commissioner should have accepted the declarations in revision (sic) and should have allowed benefit of the reduced rate to the petitioner in accordance with the notification issued under Section 12. This contention must be accepted. Indeed the learned Government Advocate did not contest this legal position in view of the Full Bench judgment of this Court in Commissioner of Sales Tax v. Dinesh Kumar Pradeep Kumar  35 STC 46 (FB).
5. The learned counsel for the petitioner also submitted that he should also be permitted to produce the declarations and claim reduced rate of tax in respect of the turnover which was shown as labour charges but which was held to be turnover of sales by the Deputy Commissioner. No benefit of concessional rate was claimed by the petitioner in respect of these transactions in the assessment proceedings or before the Deputy Commissioner. We, therefore, are unable to accept the petitioner's contention at this last stage.
6. It was lastly contended that the amount of penalty under Section 17(3) should be reconsidered by the Deputy Commissioner in view of the benefit of the reduced rate of tax to which the petitioner is entitled. In our opinion, this contention is also correct.
7. The petition is partly allowed. The order of the Deputy Commissioner is quashed and he is directed to re-decide the revision in the light of the observations made by this Court. There will be no order as to costs. Security amount will be refunded to the petitioner.