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2008 DIGILAW 1007 (CAL)

GOURANGALAL CHATTERJEE v. STATE OF WEST BENGAL

2008-11-18

PINAKI CHANDRA GHOSE, TAPAS KUMAR GIRI

body2008
JUDGMENT This is an application filed by the petitioner from the judgment and order dated June 12, 2008 passed by the learned West Bengal Taxation Tribunal. It appears that the petitioner, a partnership firm, registered under the Indian Partnership Act, 1932, was carrying on the business of working as contractor to execute works awarded by various Government Departments and private persons under appropriate agreements. The moot question in this application is whether the petitioner is liable to the assessment orders for the period of November 28, 1980 to March 31, 1981 and also April 1, 1981 to March 31, 1982 imposing purchase tax under section 6C of the Bengal Finance (Sales Tax) Act, 1941 (hereinafter referred to as, "the 1941 Act") on the materials supplied by the Government Departments and used and utilized by the petitioner in execution of the works contracts. Mr. Roy Chowdhury, the learned senior counsel, appearing on behalf of the petitioner, has strenuously urged before us that the petitioner is not liable to pay tax under section 6C of the Bengal Finance (Sales Tax) Act as has been specifically stated under clause 10 of the agreement/works contract, the petitioner was only to get the benefit of supplied goods from the Government and to carry out the construction work as specifically stated in the agreement in question. It is to be noted that the constitutional validity of levy of purchase tax under section 6C of the 1941 Act was questioned before this Tribunal and the Full Bench of the Tribunal in a decision in Nepal Chandra Banerjee v. State of West Bengal reported in [1992] 86 STC 130 (WBTT) upheld constitutional validity of imposition of purchase tax under section 6C of the 1941 Act. Subsequent thereto, the aforesaid judgment was affirmed by the honourable Supreme Court in a decision Cooch Behar Contractors Association v. State of West Bengal reported in [1996] 103 STC 477. The question arose before the learned Tribunal that whether the petitioner has purchased the materials from the contractee on the basis of the terms of the agreement entered into between the petitioner and the contractee. The learned Tribunal duly considered the relevant clause 10 of the agreement/works contract which is also reproduced hereunder : "Clause 10. The question arose before the learned Tribunal that whether the petitioner has purchased the materials from the contractee on the basis of the terms of the agreement entered into between the petitioner and the contractee. The learned Tribunal duly considered the relevant clause 10 of the agreement/works contract which is also reproduced hereunder : "Clause 10. If the specification or estimate of the work provides for the use of any special description of materials to be supplied from the engineer-in-charge's store, or if it is required that the contractor shall use certain stores to be provided by the engineer-in-charge (such materials and stores, and the prices to be charged therefor as hereinafter, mentioned being so far as practicable for the convenience of the contractor, but so as in any way to control the meaning or effect of this contract, specified in the Schedule or memorandum hereto annexed), the contractor shall be supplied with such materials and stores as required from time to time to be used by him for the purposes of the contract only, and the value of the full quantity of materials and stores so supplied at the rates specified in the said Schedule or memorandum may be set off or deducted from any sums then due, or thereafter to become due to the contractor under the contract, or otherwise, or against or from the security deposit the proceeds of sale thereof; if the same is held in Government securities, the same or a sufficient portion thereof being in this case sold for the purpose. All materials supplied to the contractor shall remain the absolute property of Government, and shall at all times be open to inspection by the engineer-in-charge. All materials supplied to the contractor shall remain the absolute property of Government, 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 shall be returned to the engineer-in-chief's store, 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 with such consent, and shall have no claim for compensation on account of any such materials so supplied to him as aforesaid being unused by him, or for any wastage in or damage to any such materials." The learned Tribunal also in his decision duly analysed the said clause 10 and summarized the features of clause 10 as follows : (i) Goods/stores were being supplied for specific purpose for consideration of payment of price. The price was to be paid but payment was deferred to the time of finalization of respective dues. (ii) The goods/materials supplied were ascertained goods and to be appropriated by the contractor for execution of the specified work. The contractor could not use any part of those materials for any other work or purpose. (iii) The contractor had no right to remove those goods from the site of the work. (iv) All such materials supplied by the Department would remain the absolute property of Government so long as those were not utilized in the concerned construction. (v) Unused materials if in good condition after completion of the work were to be returned to the Government if the engineer-in-charge in writing asked for such return. (vi) The full value of the utilized quantity of the supplied material was to be set-off or deducted from any sum due to the contractor under the contract or from the security deposit. Mr. Roy Chowdhury has submitted that a works contract can never be divisible and has further submitted that although a building contract is a single instrument even then the supply of material for construction and other payment in respect of the work done by the contractor cannot go together. It is to be taken into account that the contract itself is a whole contract and it cannot be divisible and sought to be done by the authorities in this case. It is to be taken into account that the contract itself is a whole contract and it cannot be divisible and sought to be done by the authorities in this case. Therefore, if it is not divisible then where the supply to be given by the contractee is immaterial since at the end of the day the petitioner/dealer was only entitled to get the service charge, which is specifically stated in the said works contract and therefore, it is not liable to be taxed in any manner whatsoever under section 6C of the said Act as sought to be done by the authorities. Mr. Roy Chowdhury, further contended that the contract is only one and by virtue of the said contract it was the duty of the contractor to construct in terms of the contract entered into between the parties. On the other hand it was also the duty of the contractee to supply the goods which ought to have been purchased by the petitioner from the market and in fact after the supply which was ensured to be effected by the said authority in that case there is no question in respect of the charge of tax as contained in section 6C by the petitioner in question. Therefore, it appears that the true question is whether clause 10 constituted a separate agreement for supply of stores/materials by the Department for utilization in the construction upon consideration of adjustment/set-off of the value of those supplied goods actually utilized for the purpose of such construction. We have considered such fact in the light of the decision as cited before us by the learned advocates appearing from the Bar and we have also considered and perused the decision of the learned Tribunal and in our considered opinion, the learned Tribunal has examined the said question that whether the supplies were made by contractee - Department under clause 10 specified by the authorities of the charges in strict legal sense as already decided and it appears to us in deciding the said question the learned Tribunal also relied upon the decision which was also placed before us N.M. Goel & Co. v. Sales Tax Officer, Rajnandgaon reported in [1989] 72 STC 368 (SC); [1989] 1 SCC 335 where it appears that the honourable Supreme Court answered the question which is as follows : "... v. Sales Tax Officer, Rajnandgaon reported in [1989] 72 STC 368 (SC); [1989] 1 SCC 335 where it appears that the honourable Supreme Court answered the question which is as follows : "... The question, therefore, was whether there was sale of iron, steel and cement by the PWD while supplying those materials for the construction work undertaken by the appellant. If supply of these materials is sale within the meaning of section 2(n) of the M.P. General Sales Tax Act then the appellant would be liable for payment of entry tax as it has been assessed. The question, therefore, is whether there was sale and whether the property in the goods in question passed to the appellant or continued to remain with the PWD although the PWD had in the final bill debited the prices of the goods so supplied to the appellant under clause (10) of the contract. The Full Bench found that there was sale and as a result of that the duty was leviable. The question, therefore, is whether there was sale of goods in view of the contract between the parties whereunder the custody and control of the goods remained with the PWD and goods were only used in the construction under the contract. Therefore, from the above decisions it follows that in order to be sale taxable to duty, not only the property in the goods should pass from the contractor to the Government, or the appellant in this case but there should be an independent contract - separate and distinct - apart from mere passing of the property where a party purchases or procures goods from the Government. Merely passing of property from the contractor to the Government 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 as we have set out hereinbefore. 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. 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 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. Mr. Virmani, appearing for the appellant, submitted before us that in the instant case, there was no such independent and separate sale. But we are unable to accept. Though, in a transaction of this type there is no inherent sale; a sale inheres from the transaction. Clause (10) read in the proper light indicates that position. ... In the instant case, 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 as envisaged in terms of clause (10) set out hereinbefore. Therefore, in our opinion, there was a sale which was liable to tax. The Full Bench was right in its conclusion. The appeal, therefore, fails and is accordingly dismissed. There will be no order as to costs." If further appears that the Full Bench of this Tribunal followed the said decision in N.M. Goel & Co. [1989] 72 STC 368 (SC); [1989] 1 SCC 335 in the case of Nepal Chandra Banerjee v. State of West Bengal reported in [1992] 86 STC 130 (WBTT) where the learned Tribunal held as follows : "... Having considered all aspects of the matter, we hold that a sale within the meaning of section 2(g) of the 1941 Act, namely, a transfer of property in goods supplied by the owner/contractee to the contractor for use in the execution of a works contract takes place in the cases under our consideration, when such goods are actually used in the construction work provided prices of such goods are deducted from or adjusted against bills or dues of the contractor. We further hold that there is no such sale or transfer of property in goods supplied, when such goods are supplied to the contractor free of cost, that is to say, without deduction or adjustment of the prices thereof from the bills or dues of the contractor. We have arrived at this conclusion on the basis that payment of price by whatever name it is called is the clinching factor. Such prices are amounts received or receivable as valuable consideration as contemplated in Explanation 1 to section 6D of the 1941 Act. Had the contractor purchased such goods from other sources or otherwise acquired the same for consideration, property therein would naturally vest in him. Similarly, obtaining such supplies from the owner/contractee on payment of price, whether pre-fixed or post-fixed, must have to bring about the same kind of result, namely, vesting of property in the goods in the contractor. The only difference in the second case is that the vesting takes place when the goods are used or consumed in the work. This is so, because of the inherent peculiarity of a works contract and the terms of the agreement which are obviously aimed at ensuring that the goods of the desired quality having been supplied are used in the work and not diverted for other purposes. ... Having regard to the facts and circumstances of the instant batch of applications and having considered the rival contentions of the parties and upon a harmonious reading of the decisions in N.M. Goel & Co. v. Sales Tax Officer reported in [1989] 72 STC 368 (SC); [1989] 1 SCC 335 and Builders Association of India v. Union of India [1989] 73 STC 370 (SC) we are of the opinion that the ratio laid down by the Supreme Court is that two successive sales take place, one from the owner/contractee to the contractor and the other from the contractor to the owner/contractee and in that order, when the goods supplied by the owner/contractee are used/consumed in the construction work, i.e., in the execution of the works contract. As soon as the second sale takes place, the value of the goods supplied becomes exigible to sales tax under section 6D and such value becomes a part of the taxable turnover, that is to say, the 'contractual transfer price' within the meaning of Explanation 1 to section 6D of the 1941 Act." It appears that the matter was thereafter settled by the honourable Supreme Court in Cooch Behar Contractors Association v. State of West Bengal reported in [1996] 103 STC 477 following the decision in N.M. Goel & Co. [1989] 72 STC 368; [1989] 1 SCC 335 and upheld the views of the Tribunal and the Supreme Court held as follows : "It is, therefore, clear that goods used in the execution of the works contract stand transferred from the contractor to the contractee at the time the goods are incorporated in the construction. It is also brought to our notice by the learned counsel for the respondents that the principle laid down by this court in N.M. Goel & Co. v. Sales Tax Officer [1989] 72 STC 368 (SC); [1989] 1 SCC 335 squarely applies to the second point raised herein. While considering a similar issue, namely, whether there was sale of goods in view of the contract between the parties whereunder the custody and control of the goods remained with the PWD and goods were only used in the construction under the contract, this court held that 'in the instant case, 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 as envisaged in terms of clause (10) set out hereinbefore. Therefore, in our opinion, there was a sale which was liable to tax'. Though this case was sought to be distinguished before the Tribunal by contending that ratio must be treated as one given per incuriam it was rightly rejected by the Tribunal. Therefore, in our opinion, there was a sale which was liable to tax'. Though this case was sought to be distinguished before the Tribunal by contending that ratio must be treated as one given per incuriam it was rightly rejected by the Tribunal. We are, therefore, in agreement with the conclusion reached by the Tribunal that 'having considered all aspects of the matter, we hold that a sale within the meaning of section 2(g) of the 1941 Act, namely, a transfer of property in goods supplied by the owner/contractee to the contractor for use in the execution of a works contract takes place in the cases under our consideration, when such goods are actually used in the construction work provided prices of such goods are deducted from or adjusted against bills or dues of the contractor'." The three - judge Bench of the Supreme Court in Karya Palak Engineer, C.P.W.D., Bikaner v. Rajasthan Taxation Board [2004] 136 STC 641 decided the question which was reproduced hereunder : "5. The statutory question involved in these appeals pertains to the question whether a supply of materials by the Union of India to its contractors under agreements of works contract would amount to a sale so as to attract the provision of the Sales Tax Act. 20. An attempt to distinguish the judgment in Goel's case [1989] 72 STC 368 (SC); [1989] 1 SCC 335 on facts came to be rejected by this court in the above case of Rashtriya Ispat Nigam Ltd. [1998] 109 STC 425 (SC); [1998] 8 SCC 439. 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 satisfies the definition of 'sale' in the local Sales Tax Act. 22. In Cooch Behar Contractor's Association v. State of West Bengal [1996] 103 STC 477 (SC) this court followed the decision in N.M. Goel & Co. 22. In Cooch Behar Contractor's Association v. State of West Bengal [1996] 103 STC 477 (SC) this court followed the decision in N.M. Goel & Co. [1989] 72 STC 368 (SC); [1989] 1 SCC 335 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 materials supplied made by the appellant to its contractors." In these circumstances, we are of the view that the question tried to be raised by Mr. Roy Chowdhury, learned senior counsel, appearing for the petitioner is already settled and concluded by the honourable Supreme Court. In our considered opinion, the judgment so delivered by the learned Tribunal does not suffer from any irregularity and/or illegality and accordingly we affirm the said judgment and dismiss the application so filed by the petitioner.