Providing men and materials for laying concrete mixture is to be treated as ‘Works Contract’ and not as ‘Sale’

Dear Professional Colleague,

Providing men and materials for laying concrete mixture is to be treated as ‘Works Contract’ and not as ‘Sale’

We are sharing with you an important judgment of Hon’ble High Court, Madras, in the case of Thirumalai Ready Mix Concrete Vs. State of Puducherry [(2015) 53 taxmann.com 90 (Madras)] on the following issue:

Issue:

Whether men and materials provided for laying concrete mixture can be treated as ‘Works Contract’?

Facts & background:

Thirumalai Ready Mix Concrete (“the Appellant”) is a manufacturer of ready mix cement concrete and also provides men and materials to lay concrete mixture on area specified by purchaser. For the Assessment Year 2003-04, the Appellant claimed exemption treating the transaction as a Works contract under Notification G. O. Ms. No. 50/90/F6, dated December 10, 1990.

The assessment made was revised by the Department stating that supply and pumping of ready mix concrete was not Works contract and entire turnover was liable to assessed to tax at 3 per cent.

The Appellant contended that the transaction is a Works contract and produced the copies of the Agreement executed between the dealer and the purchaser (“the Agreement”). However, the Assessing Officer rejected the contention of the Appellant by taking the view that the Appellant could not produce the invoice copy showing price of the material and labour charges separately and completed the assessment by treating the transaction as ‘Sale’. Thereafter, the Assistant Commissioner also agreed with the view of the Assessing Officer and rejected the appeal filed by the Appellant.

On appeal being filed to the Hon’ble Sales Tax Appellate Tribunal, Puducherry, the Hon’ble Tribunal relying upon the decisions of the Apex Court in Builders Association of India Vs. Union of India [(1989) 73 STC 370 (SC)] and Gannon Dunkerly & Co. Vs. State of Rajasthan [(1993) 88 STC 204 (SC)], after scrutiny of invoices and in view of the Agreement came to the conclusion that since the Agreement did not use the word ‘Works contract’, the transaction is to be treated as ‘Sale’. Being aggrieved, the Appellant preferred an appeal before the Hon’ble High Court of Madras.

Held:

The Hon’ble Madras High Court in view of the nature of the work executed, the Agreement and the responsibility cast upon the Appellant on the quality, held the following:

a. In terms of the Agreement, the nature of works entrusted to the Appellant is not restricted to supply of ready mix concrete mixture only. The Appellant was to provide men and materials in laying concrete mixture on the area specified by the purchaser.

b. The supply had to be done through staff of the Appellant and that the Appellant was responsible for quality of the concrete and the laying also.

c. In the event of any leakage arising there from in future, the responsibility was cast upon the Appellant to compensate the same.

d. The Tribunal's view that on the mere absence of the word ‘Works contract’ in the Agreement, the transactions have to be treated as ‘Sale’ is not justifiable ground.

Therefore, the Hon’ble High Court allowed the appeal in favour of the Appellant and held that the present transaction is a composite Works contract involving men and labour.

Hope the information will assist you in your Professional endeavors. In case of any query/ information, please do not hesitate to write back to us.

Thanks & Best Regards,

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