Using Word ‘Supply’ cannot Break Composite Contract into Parts: Allahabad HC allows Claim for S. 3(F)(2)(b) Benefit [Read Order]
Merely word supply of machinery is being used, will not change the nature of the contract. The contract as a whole has to be looked into.
The Allahabad High Court has held that merely using the word “supply” in a contract does not convert an indivisible composite works contract into separate sale transactions. It allowed the benefit under Section 3(F)(2)(b) of the UP Trade Tax Act.
The court, while deciding the Revision Petition filed by M/s Corrtech International Pvt. Ltd., set aside the orders of the Assessing Authority, First Appellate Authority, and the Commercial Tax Tribunal, all of which had wrongly treated a single integrated work order as a divisible contract.
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The assessee had been awarded a comprehensive contract by Reliance Industries Ltd. for design, manufacture, testing, supply, installation, and commissioning of a Cathodic Protection (C.P.) System in Kanpur, U.P.
Though the goods were imported from outside the State specifically for execution of this pre-existing contract, the authorities separated out the value of machinery and taxed it as an intra-State sale, thereby denying the statutory deduction available under Section 3(F)(2)(b) of the U.P. Trade Tax Act.
The Court noted that the contract, when read as a whole, clearly revealed a unified and indivisible obligation, where supply of the system components was merely an integral and inseparable element of the works contract.
The use of the word “supply” in certain clauses did not alter the essential nature of the arrangement.
The court, depending on decisions taken in Santosh & Company and Heera Electrodes, said that goods brought into U.P. for consumption in execution of a works contract according to a prior agreement qualify for deduction under Section 3(F)(2)(b), since such movement is deemed to be an inter-State sale covered by Section 3 of the CST Act.
Justice Piyush Agarwal observed that “This court on various occasions has held that the contract as a whole has to be looked into, which is a works contract and the benefit of Section 3 F (2) (b) can be awarded. The case in hand shows that the works was awarded which is indivisible works contract.”
Accordingly, the bench quashed the impugned order and allowed the benefit claimed under the UP Trade tax act.
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