N M GOYAL v. SALES TAX OFFICER RAJNANDGAON — 1986 DIGILAW 313 (MP)

JUDGMENT : ( 1. ) THIS writ petition has been referred to the Full Bench by the division Bench for decision of the question raised in the petition i. e. whether the petitioner can be said to have effected entry of the goods in the local area and thereby made it liable for payment of entry tax under section 3 of the M. P. Sthaniya Kshetra me Mal Ke Pravesh Par Kar Adhiniyam, 1976 (hereinafter referred to as the Entry Tax act ). The reference became necessary because of the conflict in two Division Bench decisions of this Court in Commr. of Sales Tax vs. Hindustan Steel Ltd 27 STC 478 and Commr. of Sales Tax vs. Mohammad Zahoor36 STC 414 and also because of the supreme Court decision in Brij Bhushan Lal Parduman Kumar Etc. vs. C. I. T. 115 ITR 524. ( 2. ) THE petitioner is a building contractor at Rajnandgaon in M. P. and is registered as a dealer under M. P. General Sales Tax Act. The petitioners tender for construction of foodgrains godown and ancillary buildings at Rajnandgaon was accepted by the Central Public Works Department. It was item rate tender. In the tender so submitted, it included the price of materials to be used for the construction including cost of iron, steel and cement. However, the Public Works Department agreed to supply from its stores iron, steel and cement for the construction work and to deduct the price of the material so consumed in the construction from the final bill of the petitioner. Clause 10 of contract agreement provided that the value of the full quantity of materials and stores to be supplied at the rates specified in the said schedule of materials may be set off or deducted from any sums then due or thereafter to become due to the contractor under the contract or otherwise. All materials so supplied to the contractor shall remain the absolute property of Government and shall not be removed on any account from the site of the work, and shall be at all times open to inspection by the Engineer-in-charge. All materials so supplied to the contractor shall remain the absolute property of Government and shall not be removed on any account from the site of the work, and shall be at all times open to inspection by the Engineer-in-charge. Any such materials remaining unused and in perfectly good condition at the time of the completion or determination of the contract shall be returned to the Engineer-in-charge at a place directed by him if by a notice in writing under his hand he shall so require; but the contractor shall not be entitled to return any such materials unless he is required to do so. It is not disputed that for completing the construction, the petitioner was supplied iron, steel and cement from the P. W. D. and it purchased other building material from the market. The prices of the iron, steel and cement supplied to it for the work were deducted from its final bill. The respondent by his order dated 22-9-1982 assessed the petitioner for entry tax for the period 7-6-1979 to 31-3-1980 to a tax of Rs. 11,292 including penalty of rs. 2000/- and by order dated 5-10-1982 for the period 1-4-1980 to 31-3-1981 he assessed the petitioner to entry tax of Rs. 23,393 including penalty of Rs. 4500/-because the petitioner in the first period was supplied cement worth Rs. 3,63,998 and steel worth Rs. 3,75,840/- and in the second period cement worth Rs. 12,89,534/- and steel worth Rs. 3,96,525/- by the P. W. D. from its stores for the construction work and the assessment of entry tax was at the" rate of 1% for cement and for steel at 1. 5% after finding that the petitioner is a registered dealer under M. P. General Sales Tax Act and it has been assessed to purchase tax under section 7 (1) of that Act and, therefore, it was also liable for payment of entry tax for iron, steel and cement, the entry having effected at its instance because it has ultimately used the materials for the construction work. The petitioner filed a revision before Deputy Commissioner of sales-tax who affirmed the orders. The petitioner filed a revision before Deputy Commissioner of sales-tax who affirmed the orders. The petitioner then filed the writ petition challenging assessment of purchase tax under 7 ( 1) of the M. P. General Sales Tax Act and assessment of entry tax under section 3 (1) of the Entry Tax Act saying that the entry of the materials so supplied by the P. W. D. was effected by its and not by the petitioner and since there was no sale of those materials but which were used for construction of the buildings of the P. W. D. there was no sale as such and so no entry tax can be levied. The petition is being opposed by the respondents saying that since the petitioner purchased iron, steel and cement from the Department and not from the market as per agreement and the prices of which have been deducted from its final bill, the entry of the materials can be presumed to have been made at the instance of the petitioner who has ultimately used the materials for construction work and since the materials were purchased from unregistered dealer i. e. P. W. D. , the petitioner is liable to payment of purchase tax and entry tax. ( 3. ) SECTION 3 of the Entry Tax Act is the charging section under which entry tax shall be levied on the entry in the course of business of a dealer of goods in local area specified in Schedule II for consumption, use or sale therein; and on the entry of goods specified in Schedule III for consumption or use of such goods as raw material or as packing material or in the execution of works contracts but not for sale therein. Iron and steel are in Schedule II and cement is in Schedule II and they are assessable to entry tax at the rate of 1. 5% and 1% respectively. Iron and steel are in Schedule II and cement is in Schedule II and they are assessable to entry tax at the rate of 1. 5% and 1% respectively. Under section 6 (c) when a dealer purchases goods specified in Schedule II and Schedule III in a local area from a person or a dealer who is not a registered dealer, it shall be presumed, unless the contrary is proved by him, that the entry of such goods had been effected by him into such local area before they were purchased by such dealer The learned counsel for the petitioner fairly conceded that under the circumstances it can be presumed that the petitioner has effected entry of iron, steel and cement which were supplied to it by the p. W. D. for the construction work into the local area for consumption, use or sale therein. Admittedly, P. W. D. is not a registered dealer and, therefore, section 6 (c) fully applies to the petitioner. Under Section 13 of the Act certain provisions of M. P. General Sales Tax Act shall mutatis mutandis apply to a dealer in respect of entry tax payable under this Act. The question now remains for determination is whether there was sale of iron, steel and cement by the P. W. D. while supplying these materials for the construction work undertaken by the petitioner. The learned counsel for the petitioner also conceded that if the supply of these materials is held to be sale within the meaning of section 2 (n) of the M. P. General Sales Tax Act, the petitioner would be liable for payment of entry tax as has been assessed but submitted that the property in this case in no point of time ever passed to the petitioner and continued to remain with the Department although the Department has in the final bills debited the price of the goods so supplied to the petitioner under clause 10 of the agreement. The petitioner was also bound to return the unused materials if so required by notice by the Engineer-in-chief otherwise it can appropiate those materials and it can only be said that the unused materials so appropriated amounted to sale within the meaning of section 2 (n)and not the other materials used for construction of the buildings of the P. W. D. because the materials at all time remained the property of the Department. On a careful reading of clause 10, it appears that the clause was inserted in order that there is no pilferage or misuse of the materials so supplied at control price as the market price was higher. Therefore, provision was made that the materials so supplied at the rates specified in the schedule shall remain the absolute property of the P. W. D. and shall not be removed on any account from the site of work and shall at all aimes be open for inspection by the Engineer-in-chief, which means that the petitioner was bound to use those materials only for construction work and for no other purpose and the materials so supplied was to remain the property of the Department till it was actually consumed in the construction work. Once the material was so consumed in the construction work, the property passed to the contractor and there was sale, so also there will be sale of unused material if they are not taken back by the Department. Once the material has been consumed in the construction work, there can be no question of any inspection of the material by the Engineer-in-chief, implying thereby thai the material so supplied was to remain the property of the Department till it was consumed by the petitioner in the construction work. The costs of materials so supplied and consumed in the construction work have been deducted from the final bill of the petitioner, showing that there was sale of those materials. If the Department had not supplied those materials, the petitioner would have purchased the same from the market. This also is clear from the explanation II (a) (ii) to definition of sale in section 2 (n) of M. P. General Sales Tax Act providing that notwithstanding anything contained in the Indian Sale of Goods Act, 1930, a sale or purchase of goods shall be deemed, for the purposes of this Act, to have taken place in the State wherever the contract of sale or purchase might have been made, if the goods are within State and in the case of unascertained or future goods, at the time of their appropriation to the contract of sale or purchase by the seller or by the purchaser, whether the assent of the other party is prior or subsequent to such appropriation of contract of sale. ( 4. ( 4. ) WE are fortified in our view by a decision of this Court in Commr. of Sales tax vs. Mohammad Zahoor (supra) which fully applied to the facts of the present case. It has been held therein as under : - "the assessee, a registered dealer under the M. P. General Sales Tax Act, 1958, executed certain works for the public works department of the State government. The department, which was not a registered dealer, supplied certain quantity of iron and cement to the assessee for being used in the construction works. Since the price of these articles was already included in the tender offered by the contractor and accepted by the State Government, necessary deductions were made from the final bill towards the price of iron and cement supplied by the department to the assessee in accordance with the terms of the contract entered into between them. As regards the stores supplied by the Government, the contract further provided as follows: "all materials supplied to the contractor shall remain the absolute property of government and shall not on any account be removed from the site of work and shall at all times be open to inspection by the Engineer-in-charge. Any such material unused and perfectly in good condition at the time of the completion or. determination of the contract shall be returned to the engineer-in-charges store if by a notice in writing under his hand he shall so require by the contractor shall not be entitled to return any materials so supplied to him as aforesaid being unused by him or for any wastage in or damage to any such materials". On the question whether the assessee was liable to purchase tax under section 7 (1) of the Act on the price of iron and cement supplied by the department: Held, that under the facts and circumstances of the case, the iron and cement supplied by the Public Works department to the assessee for use in the works executed by the assessee for the department was a sale and was liable to purchase tax under section 7 (1) of the Act. " The Supreme Court also in Hindustan Steel Ltd vs. State of Orissa, 25 STC 211, held that where the company supplied to contractors for use in construction bricks, coal, cement, steel, etc. " The Supreme Court also in Hindustan Steel Ltd vs. State of Orissa, 25 STC 211, held that where the company supplied to contractors for use in construction bricks, coal, cement, steel, etc. for a consideration, the question was whether the supply of building materials amounted to "sale" and the company was a "dealer" for the purposes of sales tax under Orissa Sales Tax Act, 1947. It was held (i) that the supply constituted "sale" and (ii) it cannot be said that the company was carrying on business of supplying materials and it would not be a "dealer". The learned counsel for the petitioner tried to distinguish this case by saying that no serious argument was advanced before the Supreme Court that the supply of building materials by the company for construction did not constitute sale, but the fact remain that in spite of no serious argument being advanced the Supreme Court has given a decision that the material so supplied amounted to sale. However, this is a contrary decision by this court in Commr. of Sales Tax vs. Hindustan Steel Ltd 27 S. T. C. 478, wherein it has been held as follows:- "while the assessee, the Hindustan Steel Limited, Bhilai Steel Project, was in the process of constructing its building and roads, it employed contractors for such constructions. Since the building materials were controlled, the assessee agreed to procure the material and supply the same to the. contractors. For these supplies the assessee charged the contractors its cost price plus 10 per cent, for supervision and storage. On the question whether these supplied amounted to sales; Held that the supplies of materials by the assessee to its contractors, did not amount to "sales" within the meaning of the C. P. and Berar Sales Tax Act, 1947, and that the assessee was not a dealer within the meaning of section 4 of the Act in respect of such supplies". The Division Bench erred in saying that there is nothing to indicate that the ownership of materials passed to the contractors. The Division Bench erred in saying that there is nothing to indicate that the ownership of materials passed to the contractors. In that case, Hindustan Steel limited supplied materials for construction of its building to the contractors and the prices of materials so consumed in the construction were deducted from its bills but this fact was overlooked by the D. B. There was clause 51 which was similar to clause 10 of the present case that all materials supplied to the contractor shall remain the absolute property of the company and shall not on any account be removed from the site of work so long the materials were not used in the construction work. Once the materials were so used, there was transfer of those goods to the contractor and the price thereof were deducted from its bills. Similar is the decision of the Calcutta High court in Cementation Patel vs. Commr. , 47 S. T. C. 385. The decision of the Supreme Court on which strong reliance is placed by the learned counsel is Brij Bhushan Lal Parduman Kumar Etc. vs. C. I. T. (supra), which is clearly distinguishable wherein the Supreme Court held that since no element of profit was involved in the turnover represented by the cost of the materials suplied by the government to the appellant, the income or profits derived by the appellant from such contracts had to be determined on the basis of the value of the contract represented by the cash payments received by the appellant from the Government exclusive of the cost of the materials received for being used, fixed or incorporated in the works. In that case, the Supreme Court was considering whether there was any profit made by the contractor while taking supply of certain materials from the department for the construction work held that there being no profit element, the value of the materials used for execution work cannot be taken into account in computation of profit. The Supreme Court was not required to considered whether the supplies amounted to sale or not. There may be sale without profit. Therefore, this decision has no direct bearing on the present case, so also similar decisions in M. P. Alexander and Co. The Supreme Court was not required to considered whether the supplies amounted to sale or not. There may be sale without profit. Therefore, this decision has no direct bearing on the present case, so also similar decisions in M. P. Alexander and Co. s case of Kerala High Court, (1973) 92 ITR 92, K. S. Guruswami gounders, Madras High Court, (1973) 92 ITR 90, Trilokchand Chunnilals case, of gujrat High Court, (1976) 104 ITR 732, Trikamji Punias case of Gujrat High Court, (1977) 106 ITR 597, and Farfatia andco. , Indore vs. C. I. T. , (1981) XI Income Tax cases 227, which were all concerning whether there was any profit by the contractor while taking supply of material from the Department for construction work for assessment of income tax. ( 5. ) UNDER the circumstances, the petition fails and it is dismissed. There shall be no order as to costs. Outstanding security amount be refunded to the petitioner. Petition dismissed.