1. The petitioner, a company within the meaning of the Companies Act, 1956 and a registered dealer under the West Bengal Sales Tax Act, 1994 (hereinafter referred to as, "the Act of 1994") and also under the West Bengal Value Added Tax Act, 2003 (hereinafter referred to as, "the VAT Act") placed an order termed as purchase order dated November 8, 1997 with Texmaco Ltd., respondent No. 3 for manufacturing and supplying three oxygen buffer vessels (hereinafter referred to as, "the vessels") under an agreement entered into for the purpose. It appears from the agreement that some raw materials required for manufacturing those vessels were supplied by the petitioner and the vessels were manufactured by respondent No. 3 as per the design furnished by the petitioner. After manufacture Texmaco delivered those vessels to the petitioner by three invoices and charged sales tax on the entire invoice price at three per cent subject to submission of declaration forms. The petitioner also paid the sales tax as charged by respondent No. 3. It has been alleged by the petitioner that the tax was paid under a misconception and without examining the legality of charging such sales tax. Subsequently the petitioner took legal advice and came to learn that no sales tax was payable as this kind of transaction was in the nature of works contract and did not constitute sale within the definition of "sale" under Section 2(30) of the Act of 1994. The petitioner raised objection and requested respondent No. 3, Texmaco Limited, not to charge any sales tax, but respondent No. 3 declined to refrain from charging sales tax unless an order was obtained from the appropriate assessing authority. The petitioner-company thereafter approached the assessing authority and submitted a written representation on May 18, 2005 contending, inter alia, that respondent No. 3 was acting illegally in charging sales tax on the invoice price of the vessels and was thereby indulging in unjust enrichment. As no tax was payable according to the petitioner, it did not submit any declaration forms. On October 6, 2005, the petitioner received a fax mail from respondent No. 3 asking it to pay Rs. 11,32,092 as tax and Rs. 1,69,814 as surcharge as the petitioner failed to submit declaration forms in time. On October 18, 2005, the petitioner sent a notice to the assessing authority raising a dispute and seeking determination on its legal liability to pay tax on the aforesaid transaction.
2. While such dispute was raised by the petitioner, sales tax liability of Texmaco was assessed by the appropriate assessing authority. In its return Texmaco included full price of the said vessels as supplied to the petitioner during the relevant period in its total turnover and the sales tax realised from the petitioner. Against the assessment order Texmaco has filed an appeal before the appellate authority on various points, but it did not question chargeability of sales tax on the total price of the disputed vessels. The said appeal of Texmaco is still pending.
3. In the assessment proceeding against Texmaco Ltd., and in the appeal preferred by the Texmaco Ltd., the petitioner was not a party. Sales tax being an indirect tax and paid to the exchequer by the dealer, the petitioner did not get any opportunity to have its liability to pay sales tax on the demand by the dealer determined by any authority under the Act of 1994. As there is no other alternative, the petitioner has moved this application before this Tribunal under Section 8 of the West Bengal Taxation Tribunal Act, 1987.
4. Mr. Mondal, learned State Representative has questioned the petitioner-company's right to move this Tribunal. According to him, sales tax is to be deposited by the seller and the buyer has no cause of action against the State and/or sales tax authorities. He has also pointed out that the petitioner was/is not a party either in the assessment proceedings against or in the appeal filed by Texmaco.
5. Sales tax is a form of indirect taxation. It is realised by the seller from the buyer and the seller ultimately deposits such realised tax with the State exchequer. Although seller is the dealer in respect of sales and sales tax, it realises tax from the buyer and as such does not ordinarily suffer anything as it is not required to pay from its own fund. In case of any illegal or unjust realisation of sales tax by the seller, the buyer actually suffers the tax and it is he who is really and directly aggrieved. The seller charges and realises sales tax from the buyer as part of its statutory duty and/or obligation imposed by a legislative action of the State. We are unable to accept the objection raised by Mr. Mondal that the petitioner cannot be an aggrieved person within the meaning of the West Bengal Taxation Tribunal Act, 1987.
6. Mr. Mondal has raised another technical objection regarding impleading Texmaco Ltd., as a respondent (respondent No. 3) in this application. This objection is not sustainable inasmuch as sales tax is being realised by the respondent No. 3 and it is its firm stand that it will continue to realise sales tax on the sale price until the competent authorities under the Act of 1994 specifically decides whether such tax is realisable or not. The petitioner has claimed that the transaction is not taxable as it does not involve sale of goods.
Nature of the transactions is required to be examined for the purpose of determining the real nature of the transaction. Respondent No. 3 is required to be heard for effective adjudication of the basic question involved in this application and it is undoubtedly a proper party, if not necessary party, in the proceeding.
7. The petitioner has contended that the transaction was in the nature of works contract and no sales tax was payable thereon. Mr. Sen, learned Advocate appearing for the petitioner has relied upon the following decisions in support of such contention:Commissioner of Commercial Taxes v. Hindustan Aeronautics Ltd.Union of India v. Central India Machinery Manufacturing Co. Ltd.Assistant Sales Tax Officer v. B.C. Kame (5) Studio Kamalalaya v. Commercial Tax Officer  89 STC 307 (WBTT) (6) Bijoy Processing Industries v. Commercial Tax Officer, Central Section  92 STC 503 (WBTT) 8. Before dealing with the decisions cited by Mr. Sen, learned Advocate for the petitioner, it is necessary to analyse the features of the present agreement between the petitioner and respondent No. 3. The features relevant for the purpose of determining the dispute about the nature of the transaction as appear from the agreement between the petitioner and respondent No. 3 are enumerated below: (1) The order placed by the petitioner is described as purchase order (emphasis Here Italicised supplied) page 15 of the application.
(2) In the agreement the petitioner has described itself as purchaser and respondent No. 3 as manufacturer.
(3) In the agreement the consideration has been described as price and in Clause 5.1.2(b) the total price of 8 vessels has been mentioned.
(4) In Clause 5.2.4 it has been specifically mentioned that Central sales tax at four per cent was payable.
(5) Clause 5.9 dealing with terms of payment also indicates that the transaction was being treated as sale transaction.
(6) In Clause 5.13 relating to delivery Schedule respondent No. 3 has been described as vendor.
(7) Clauses 2.2.1 and 2.2.3 stipulate that the purchaser, i.e., the petitioner shall supply the boiler quality plate material only for shell and dished ends as free issue and as all other materials shall be under the scope of the manufacturer which would include but not be limited to the following: (c) Blank for manholes for compatible with gasket, fastners, davit arm assembly (f) All materials for CS (Is 2062) skirt plate, base plate, skirt access (h) Gaskets, blank plates, fastners, etc., required for nitrogen filling during despatch (i) All materials required for any gadgets for fabrication and testing 9. Clause 2.3.1 shows that the vessels will be complete in one piece with various components like shell, dished ends, skirt, nozzles, flanges, manhole, manhole cover with davit arm, internal ladder and platform, patched plates for external ladders/platforms, etc.
10. All kinds of fabrication testing including fabrication of dished ends are to be done by the manufacturer.
11. Under Clause 5.4 the manufacturer is to submit an indemnity bond for the full value of free issue materials supplied by the petitioner.
The manufacturer is also to obtain necessary insurance policy for full value of the plates supplied by the petitioner.
12. Clause 5.9 dealing with terms of payment shows that payment will be made upon submission of invoice by the manufacturer.
13. Warranty clause being Clause 5.14 stipulates that all the vessels shall be guaranteed for satisfactory performance against any defect in material supplied by the manufacturer or workmanship for a period of 12 months from the date of commissioning or 18 months from the date of despatch, whichever is earlier.
14. The invoice as raised by the manufacturer and accepted by the petitioner also mentions the value as the price of the finished product, i.e., vessel.
15. Under Clauses 5.2.3 and 5.2.4 excise duty and Central sales tax is payable on the full value of the vessels.
16. Learned Advocate for the petitioner has also placed before us a calculation of the cost for each vessel. It appears from the calculation sheet that while value of the free materials supplied by the petitioner for one vessel is Rs. 20,86,250, the cost of materials supplied by and that of fabrication made by the manufacturer amounts to Rs. 19,27,013, i.e., almost equal to the value of the materials supplied by the petitioner.In Commissioner of Commercial Taxes, Mysore v. Hindustan Aeronautics Ltd.  29 STC 438 the Supreme Court considered the salient features of the contract and noted that advance on account to the extent of 90 per cent was made ; that the material used for the construction of coaches was the property of the Railways ; that no other material except those supplied by the Railways was used ; that the wheel sets and the under-frames was supplied free of cost and that in the order the words used were "manufacture and supply of the following coaches". On the basis of these features the Supreme Court concluded that when all the materials used in the construction of a coach belonged to the railways, there could be no sale of the coach itself. The Supreme Court also recorded that the difference between the price of a coach and the cost of material could only be the cost of services rendered by the assessee.
18. In the present case, as already pointed out, excepting boiler quality plate material for shell and dished ends, all other materials have been supplied by the manufacturer and only five per cent of the basic order value is to be paid as advance against bank guarantee of an equivalent amount. Everywhere in the present agreement the petitioner has described itself as the purchaser and the respondent as manufacturer and even vendor in some clauses.In State of Gujarat v. Variety Body Builders  38 STC 176 the Supreme Court has held: It is well-settled that when there is a written contract it will be necessary for the court to find out therefrom the intention of the parties executing the particular contract. That intention has to be primarily gathered from the terms and conditions which are agreed upon by the parties....
20. In the aforementioned case the Supreme Court has laid down that the decisive element in determining whether a particular deal is sale or works contract is the property in the manufactured product. If the final product is regarded as a separate goods belonging to the manufacturer and the property in the said final product remains with the manufacturer/supplier at the time of its delivery, it is a sale.
But if the property in the materials used and also in the ultimate product remains with the person placing the order, it is a works contract.
21. In Variety Body Builders  38 STC 176 (SC) the disputed work was undertaken in the railway premises. Underframes and electric goods were supplied by the Railways. Body of the coach was built on the underframe under regular supervision and vigil of the railways.
Railways' labourers were also utilised and engaged. Some parts of the work, namely, handbrake arrangements were actually done by the Railways. On the basis of the terms of the agreement particularly Clause 25 thereof stipulating that in case of the death of the contractor the legal representatives would have no interest in the agreement. The Supreme Court concluded that the property in the body of the coaches was with the Railways and as such this was not a sale but a works contract.
22. Those features which weighed with the Supreme Court in holding that the deal was a works contract are not available in the present case.In Union of India v. Central India Machinery Manufacturing Co. Ltd.  40 STC 246, the Supreme Court has pointed out that "if the bulk of the material used in the construction belongs to the manufacturer who sells the end-product for a price that will be a strong pointer to the conclusion that the contract is in substance one for the sale and not one for work and labour". In the said case the Supreme Court put strong emphasis on the clause relating to payment. The said payment clause stipulated that as soon as a vehicle was completed, the company would get it examined by the inspecting officer and submit to the purchaser an on account bill for 90 per cent of the value of the vehicle and upon payment of said 90 per cent bill the vehicle in question would become the property of the purchaser. On the basis of the said payment clause the Supreme Court held that "there could be no clearer expression of the intention of the contracting parties than this clause that the contract was, in substance, one for the sale of manufactured wagons by the company for a stipulated price". In deciding the said case the Supreme Court relied upon its earlier decision in In the Assistant Sales Tax Officer v. B.C. Kame  39 STC 237, the Supreme Court was considering a case of a photographer who undertook to take photograph, develop the negative and to do other photographic works and thereafter supply the prints to his client. The Supreme Court held therein that the contract was essentially one of skill and labour and did not constitute sale of goods. The Supreme Court therein has approvingly quoted the following observation of the Supreme Court in State of Himachal Pradesh v. Associated Hotels of India Ltd. Thus, in considering whether a transaction falls within the purview of sales tax, it becomes necessary at the threshold to determine the nature of the contract involved in such a transaction for the purpose of ascertaining whether it constitutes a contract of sale or a contract of work or service.... From the decisions earlier cited, it clearly emerges that such determination depends in each case upon its facts and circumstances. Mere passing of property in an article or commodity during the course of the performance of the transaction in question does not render it a transaction of sale. For, even in a contract purely of work or service, it is possible that articles may have to be used by the person executing the work and property in such articles or materials may pass to the other party. That would not necessarily convert the contract into one of sale of those materials. In every case the court would have to find out what was the primary object of the transaction and the intention of the parties while entering into it.
25. In Studio Kamalalaya v. Commercial Tax Officer  89 STC 307 (WBTT), this Tribunal took the view that in the case of works contract the basic goods forming the subject-matter of works contract should belong to a person other than a contractor.
26. Same view was followed by this Tribunal in Bijoy Processing Industries v. Commercial Tax Officer, Central Section  92 STC 503 (WBTT). It has been held therein that works contract envisages an agreement between two persons--one owning the property or the goods and the other carrying out certain specific works on it. According to this Tribunal there has to be a property owned by somebody who engages somebody else to carry out certain works involving application or affixation of certain materials to that property.
27. Mr. Mondal, learned State Representative, has referred to the decision of the Supreme Court in Patnaik and Co. v. State of Orissa reported in  16 STC 364. In Patnaik and Co.  16 STC 364, the Supreme Court was considering an agreement between Patnaik and Company and State of Orissa for construction of bus bodies on the chassis supplied by the State of Orissa. In the agreement Patnaik & Co., was responsible for the safe custody of the chassis from the date of receipt till their delivery to the State and the company had to insure its premises including the chassis against fire, theft, damage and riot at its own cost. The company was to construct the bus bodies in strict accordance with the specifications and to deliver the bodies to the Governor on or before the date specified in the agreement.
Analysing the terms of the said agreement the Supreme Court found that the property in the bus body did not pass on its being placed or constructed on the chassis but only when the whole vehicle including bus body was delivered. On the basis of such finding the Supreme Court held that the contract as a whole was a contract of sale of goods.
28. Patnaik and Co.  16 STC 364 has been followed by the Supreme Court in several decisions rendered thereafter. Relying upon the said decision of the Patnaik and Co.  16 STC 364 (SC) several High Courts have also held that the contract for constructing body of bus on the chassis supplied by the person placing the order constitutes sale of goods and not works contract.
29. We have already pointed out the specific features of the agreement between the petitioner and respondent No. 3. Those features, according to us, show that the transaction was a sale transaction and not a works contract as contended by the petitioner. Clauses relating to supply of materials, indemnity bond, insurance policy, advance payment, final payment, guarantee for the materials supplied by the manufacturer and warranty for good performance thereof, clearly indicate that excepting the property in the boiler quality plates supplied free by the petitioner, property in all other materials and the ultimate finished product belonged to respondent No. 3, the manufacturer, till delivery thereof to the petitioner upon receipt of agreed consideration in accordance with the terms thereof.
30. It, however, appears that respondent No. 3 has charged sales tax on the total amount including the price of the material admittedly supplied free by the petitioner-company and paid such realised tax to the State Government. Prima facie it appears to us that the price/value of the materials supplied free by the petitioner for manufacturing the vessels should not have been included in the sale price. However, we do not express any final opinion on the same inasmuch as several factual aspects particularly whether the petitioner derived any other benefit on the said amount or cash are required to be considered for the same purpose. So we intend to give liberty to the petitioner to raise the said question before the assessing authority of respondent No. 3 with supporting materials, facts and figures and if such question is raised, the said assessing authority will consider the same by giving opportunity of hearing to the petitioner-company and respondent No. 3 and pass a reasoned order within 3 months from the date of formally raising such question/dispute. In case it is found that no sales tax was/is payable on the price of the materials supplied free by the petitioner to the manufacturer, the petitioner is to approach the Commissioner under Section 37(3) of the 1994 Act to get refund of the excess tax realised by the dealer and deposited with the Government.
31. For the foregoing reasons we hold that the disputed transaction as evidenced by the agreement between the petitioner and respondent No. 3 is a sale transaction and not works contract. We dispose of this application with the following directions: (a) The petitioner-company is given liberty to raise a dispute or question before the assessing authority having jurisdiction to assess the tax liability of respondent No. 3 regarding legality of charging sales tax on the value of the materials which were supplied free by the petitioner to respondent No. 3 for manufacture of the disputed vessels. Such dispute or question is to be formally raised by making a suitable application to the aforesaid assessing authority within five weeks from this date.
(b) If such dispute or question is raised by the petitioner-company, the, aforementioned assessing authority will determine the same after giving opportunity of hearing to the petitioner and respondent No. 3 and by passing a reasoned order within three months from the date of filing application for the purpose.
(c) If it is found that the excess sales tax has been realised by respondent No. 3, the petitioner-company will approach the Commissioner of Commercial Taxes, West Bengal, for refund of the excess tax and the Commissioner will treat it as an application under Section 37(3) of the West Bengal Sales Tax Act, 1994 and pass appropriate order of refund within two months from the date of such approach.