Commissioner of Trade Tax, U.P., Lucknow. vs. M/s Executive Engineer, Rampur. And. Trade Tax Revision Nos. 353 & 354 of 1995

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1 Date of Decision : 4th October, (Vol. 26) [ALLAHABAD HIGH COURT] Hon'ble Rajes Kumar, J. Trade Tax Revision Nos. 719, 750, 752 of 1995 Commissioner of Trade Tax, U.P., Lucknow vs. M/s Executive Engineer, Rampur And Trade Tax Revision Nos. 353 & 354 of 1995 M/s. U.P. Avas Avam Vikas Parishad, Meerut. vs. Commissioner of Trade Tax, U.P., Lucknow Works Contract - Determination of turnover - Material supplied by contractee - Materials supplied to the contractor are property of contractor but not to be removed from the site without permission of contractee and are open to inspection - Unused and good condition material may, by special arrangement, be taken over by contractee against payment - U.P. Trade Tax Act, 1948, Section 3-F(2) (b) - For A.Y , , Tribunal held that supply of material was not sale - For A.Y & held the supply of material was sale - Whether supply of material by the contractee to contractor is sale? - Held - Yes - In the case of Karyapalak Engineer vs. Rajasthan Taxation Board [2004 (Vol. 25) 1004] Hon'ble Supreme Court held that by use or consumption of material in the work of construction, there was passing of property in the goods to the assessee from P.W.D. - By appropriation and by the agreement there was a sale as envisaged in terms of clause 10 of the contract - By use or consumption of material supplied in the work of construction, there was passing of property and by virtue of receipt of value of such transferred property by way of adjustment in the bill the consideration has also passed which satisfied the definition of Sale - There is no difference in clause of agreement referred by the Tribunal in present case and the clause of agreement considered by the Apex Court, Similar conditions were in contract in the present case as well as in the case before Apex Court - On the fact and circumstances, supply of material by the Parishad Contractee to the contractor is a sale and liable to be taxed. Cases referred :

2 N.M. Goel and Company vs. CST 1990 UPTC 865 Karya Palak Eng. vs. Rajasthan Taxation Board 2004 (Vol. 25) 1004 JUDGMENT (Hon'ble Rajes Kumar, J.) The present five Revisions No. 719 of 1995, 750 of 1995, 752 of 1995 Commissioner of Trade Tax, U.P. vs. M/s Executive Engineer, Rampur and 353 of 1995 and 354 of 1995 U.P. Avas Avam Vikas Parishad, Meerut vs. Commissioner of Trade Tax, U.P. Lucknow have been filed under Section 11 of U.P. Trade Tax Act (hereinafter referred to as Act ) are directed against the order of Tribunal dated , and relating to the Assessment Years , , and under U.P. Trade Tax Act. 2. In all the five revisions, common questions of law are involved, therefore, all the revisions are being decided by a common order. 3. The U.P. Avas and Vikas Parishad (hereinafter referred as Parishad) is a Semi Government Department engaged in the construction of house and providing the same to the weaker section of public on cash term basis and on easy instalments. For construction of houses, Parishad entered into an agreement with the contractors. As per the agreement, Cement and Lime were supplied to the contractor, which were purchased from outside the State of U.P. against Form 31. Value of Cement and Lime were deducted from the payment to the contractor. Assessing Authority treated the supply of Cement and Lime by the dealer to the Contractor as a sale and levied tax on

3 the value of Cement and Lime. First appeals filed by the Parishad were rejected for the Assessment Years , , Tribunal allowed the appeal and held that the supply of Cement and Lime was not a sale. However, for the Assessment Years and , Tribunal has not accepted the plea of Parishad and confirmed the levy of tax on the value of Cement and Lime. Being aggrieved by the order of Tribunal, revisions have been filed by both Commissioner of Trade Tax and by the Parishad. 4. Heard Counsel for the parties. 5. Tribunal in the Assessment Years , and incorporated the Clause-II of the agreement entered into by the dealer and opp. party, which is referred as below...all materials supplied to the contractor are the property of the contractor, but shall not on any account be removed from the site of the work, except with the written permission of the Engineer-in-charge or under his order and shall at all times be open to inspection by the Engineer-in-charge. Any such materials unused and in perfectly good condition at the time of the completion or determination of the contract may, by special arrangement be taken over by U.P.A.V.P. at the prevailing market rates if required for use on other works in progress provided that the price allowed shall not exceed the amount charge to the contractor. 6. Tribunal has distinguished the decision of Apex Court in the Case of N.M. Goel and Company vs. CST reported in 1990 UPTC page 865 on the ground that in the

4 instant case, the contractor was on the completion of the contract was duty bound to return the unused materials i.e. Cement etc. In my opinion, order of Tribunal for the Assessment Years , and are not sustainable in view of the recent case of Apex Court in the case of Karya Palak Engineer Vs. Rajasthan Taxation Board, Ajmer and other reported in 2004 (Vol. 25) 1004; JT. Today 2004 (6) SC page 384. The relevant paragraphs of the above decision are as follows :- 6- Since the appeals before us involve similar questions, we will refer to the facts in C.A. Nos of 2001 for brevity. The Union through its agency Central Public Works Department (CPWD) undertook the work of erection of barbed wire fencing along Indo Pak border from 1991 onwards in the State of Rajasthan. In order to get the construction work done the appellant awarded contracts to various contractors and under the terms and conditions of the said contract it had agreed to supply the contractors materials such as cement, barbed wire, M.S. angles etc. It is pleaded that the appellant purchased the materials from various reputed concerns on payment of consideration and the said transactions were subjected to Sales Tax leviable at this stage. It is further stated that the very same goods were in turn supplied to the contractors and value of the said goods were adjusted in the final bills of the contractors, it is contended that since the appellant issued materials to the contractors at fixed issue rates, the said supply did not amount to sale because the contractors never became owner of such materials but remained only as a Custodian of such materials and used them, on creation of Immovable properties for completing the contracted job. In such circumstances, it

5 is contended that there is no element of sale, therefore, the appellant Union can not be treated as a dealer under the Act nor it can be subjected to the levy of sales tax. The next contention in this regard is assuming for the argument sake there would be some sort of a sale, the property so transferred being the property of the Union of India, under Article 285 of the Constitution of India, the State has no authority to impose a tax on the property of the Union. 17- The next contention urged on behalf of the appellant in the alternative is that on the facts of the cases in hand, there is no transaction of sale involved. For this strong reliance was placed on the relevant clauses of the agreement between the parties. In the case of appellants in C.A. Nos /2001 the same is found in clause 10 of the agreement. According to the learned Counsel for the appellants, as per the terms in the above said clause the materials supplied to the contractors remained to be the absolute property of the Union and the same could not be removed on any account from the site of the work and was at all times open to inspection by the concerned authorities, it is also submitted that any materials supplied, remaining unused in the works contract, were to be refunded to the authority concerned and the contractors at all given point of time was only a custodian of the material so supplied to him. On the basis of the above, it was contended that the title in the property supplied to the contractor never ever got transferred nor any specific consideration has passed for the supply of the goods.

6 18- This Court has an occasion to dealt with a similar clause where the Union of India entered into an agreement for the construction of certain works, wherein it agreed to supply materials such as cement, steel etc. (as in the case in hand) in the said case of M/s N.M. Goel & Co. vs. Sales Tax Officer, Rajnandgaon and Anr. This Court held. In order to be sale taxable to duty, there should be an independent contractseparate and distinct-apart from passing of the property, where a party purchases or procures goods from the Government. Mere passing of property would not suffice. There must be sale of goods. The primary object of the bargain judged in its entirety must be viewed. In the instant case, clause 10 is significant. Though in a transaction of this type there is no inherent sale but a sale inheres from the transaction. Clause 10 read in the proper light indicates that position. By use or consumption of materials in the work of construction, there was passing of the property in the goods to the assessee from the PWD. By appropriation and by the agreement, there was a sale envisaged in terms of clause 10 of the contract. 19- In case of Rashtriya Ispat Nigam Ltd. vs. State of A.P. this Court relying on the said judgment of M/s N.M. Goel & Co. (supra) held:- For the purpose of performance, the contractor was bound to procure materials. But in order to ensure that quality materials are procured, the PWD undertook to supply such materials and stores as from time to time required by the contractor to be used for the purpose of performing the contract only. The value of such quantity

7 of materials and stores so supplied was specified at a rate and got set off or deducted from any sum due or to become due thereafter to the contractor 20-An attempt to distinguish the judgment in Goyal s case on facts came to be rejected by this Court in the above case of Rashtriya Ispat Nigam Ltd. 21-In the instant case also by the use or consumption of material supplied in the work of construction, there was passing of property and by virtue of receipt of value of such transferred property by way of adjustment in bills the consideration has also passed which in our opinion, satisfied the definition of sale in the local Sales Tax Act. 22-In Cooch Behar Contractor Association vs. State of West Bengal and Ors. This Court followed the decision in M/s N.M. Goel & Co. (supra) and considering a similar clause as is found in the appeal before us this Court held that the goods supplied to the contractor, by the contractee and price recovered from the contractor by way of adjustment of value of such goods was held to be a contractual transferred price which is liable to levy of sales tax Therefore, we do not find any merit in the argument that even on facts that there was no sale in the transfer of material supplied made be the appellant to its contractors. 7. In my opinion, there is no difference in Clause of the agreement referred by the Tribunal and the Clause of the agreement considered by the Apex Court in the aforesaid case, similar conditions were in contract in the present case of Parishad as well as in the case before the Apex Court.

8 8. On the facts and circumstances, supply of material by the Parishad contractee to the contractor is a sale and liable to be tax. 9. In the result, Revision Nos. 719 of 1995, 750 of 1995, 752 of 1995 are allowed. Orders of Tribunal are set aside and the Revision Nos. 353 of 1995 and 354 of 1995 are accordingly dismissed..