Shakun Udyog vs Commissioner, Trade Tax and Others

Satish Chandra, J.—Present petition has been filed against the order dated October 7, 2003 passed by the Trade Tax Tribunal in Second Appeal No. 569 of 2002 for the assessment year 1988-89. The brief facts of the case are that the petitioner is a partnership firm constituted for taking the job work contract. During the assessment year under consideration, the petitioner received two contracts of civil work for building and for sanitary and electricity work for Rs. 17,16,455 and 24,31,609, respectively.

The petitioner did the civil work in Nanda Khera commercial-cum- residential complex as well as electricity, sanitary fitting works. The petitioner claimed the composite contract for civil, electricity and sanitary, but the assessing officer, has passed an order u/s 7D of the Act, against which, the appeal was filed, but the same was dismissed. Being aggrieved, the petitioner has filed second appeal before the Tribunal, who has dismissed the appeal. Not being satisfied, the petitioner has filed the present writ petition.

With this background, Sri S.M.K. Chaudhary, learned senior counsel, for the petitioner submits that the petitioner has maintained separate accounts in respect of goods involved in the execution of above contracts and payment in lieu of labour charges was shown separately in the cash book and ledger account. Accordingly, the labour charges were paid by the petitioner, which should have been deducted from the value of the receipts of the contract. He also submits that all electrical and sanitary works were done by the petitioner. So, the same should be covered in the composite scheme u/s 7D of the Act. The order passed by the assessing officer is against the provision of the law as there is no such provision by which the demand of composite fee of Rs. 17,163 u/s 7D of the Act would be created in proceedings under rule 41(7). Further, the petitioner was assessed the tax of Rs. 36,104 on the estimated turnover of Rs. 2,73,520, which is extremely high. To support his argument, he relied on the ratio laid down in the following cases:

(1) Lal Chand & Company v. State of U.P. [1997] 10 NTN 356, where it was observed that the water pipeline is laid down exactly in the same fashion as the sewer line.

(2) Arun Electrics v. Commissioner of Sales Tax, Maharashtra State [1966] 17 STC 576 (SC), where it was observed that the sales tax is exigible may be determined only on the terms of the contract, and not from the invoice issued by the person entitled to receive money under the terms of the contract.

(3) Commissioner of Commercial Taxes, Bihar, Patna v. Indian Cable Co. Ltd. [1971] 27 STC 488 (Patna), where it was observed that the contract between the parties was a works contract and not a central relating to sale of goods. Therefore, it was not liable to sales tax under the Central Sales Tax Act, 1956.

But the fact remains in the instant case that the Central Sales Tax Act is not involved. So, the ratio is not applicable.

Lastly, he made a request that the impugned order may kindly be set aside.

On the other hand, Sri D.R. Misra, learned standing counsel justified the impugned order without making any contribution.

After hearing both the parties, it appears that the petitioner has taken the contract for the civil work as well as the electricity and sanitary. For each item, a separate amount was fixed by the Lucknow Development Authority.

Needless to mention that a building contract can also be an indivisible contract. In the instant ease, the entire works contract was a composite and indivisible one and in fact what Was agreed there and intended between the parties was not to supply the materials in the course of contract, but as and when such material (electrical and sanitary) were embedded in contractual work involved, then they became the property of the other party. Hence, there would be no question of sale of such material by the contractor to the other. The entire transaction was a clear works contract and did not involve any sale. The petitioner constructed the entire works according to the specification contained in the agreement and in construction thereof received the payment. In both the agreements there was neither a contract to sell the material used in the construction, nor does the property passed therein as movable property.

in the instant case, the Lucknow Development Authority has executed a contract for the supply work, in which sanitary fittings and electrical fittings were also required, but for the purpose of payment of amount of the entire work, two contracts were signed amounting to Rs. 17,16,455 and 24,31,609. However, out of Rs. 24,31,609, the petitioner had received Rs. 5,94,304 in the year 1988-89. Since the above amount was not found compoundable by the Deputy Commissioner (Executive), therefore, the assessment proceedings on the amount of Rs. 5,94,304 was initiated by the authority competent, where it was found that the petitioner used material of Rs. 4,75,472 for completion of works contract. After the date of agreement of contract, the petitioner had purchased material for amount of Rs. 2,01,950 to which he placed list which were exempted from tax. In respect of purchase of Rs. 2,73,522 no evidence was placed, therefore, the material of Rs. 2,73,522 was treated as inter-State purchase for using in works contract. Thus, vide order dated January 31, 1993 tax demand of Rs. 36,104 was imposed upon the petitioner.

in view of the above, the orders passed by the lower authorities appear reasonable. Hence, I find no reason to interfere with the impugned orders and the same are hereby sustained along with the reasons mentioned therein. The writ petition is dismissed.