JUDGMENT
Syed Shah Mohammed Quadri, J.
1. This tax revision case is filed under section 22(1) of the Andhra Pradesh General Sales Tax Act, 1957 (for short, the Act) by the State.
2. The respondent-Union of India, hereinafter referred to as “M.E.S.”, entered into a contract for construction of buildings with a building contractor. It appears, the terms of the contract provide that for the purpose of the construction, cement and steel will be supplied by M.E.S. to the contractor and the price thereof will be deducted from the amount payable to the contractor for the work done by him. For the assessment year 1985-86, the Commercial Tax Officer, assessing authority, called for the particulars of the supplies of goods made by M.E.S. to the contractor. The M.E.S., however, did not furnish the particulars, so the assessing authority estimated the net turnover at Rs. 12,50,00,000 and assessed it to sales tax. Aggrieved by the assessment orders passed by the assessing authority, M.E.S. filed an appeal before the Appellate Authority – Deputy Commissioner (C.T), Kakinada. It was pleaded before the appellate authority that in view of the provisions of article 285(1) of the Constitution of India, no tax can be collected from the Union Government; further M.E.S. is not a dealer within the meaning of the Act, as it is not carrying on business, therefore, no sales tax can be levied on it. It was also pleaded that no reasonable opportunity was given to M.E.S. The abovesaid pleas were not accepted by the appellate authority and the appeal was dismissed on July 31, 1992; the matter was remanded to the assessing authority to verify the actual turnover and assess the tax according to law. Aggrieved by the order of the appellate authority, M.E.S. filed an appeal before the Sales Tax Appellate Tribunal. The Tribunal held that M.E.S. could not be said to be a dealer under the A.P. General Sales Tax Act; the Tribunal thus allowed the appeal, setting aside the order of the appellate authority on September 21, 1995. It is the validity of that order of the Tribunal that is the subject-matter of this tax revision case before us.
3. The learned Special Government Pleader for Taxes submits that the Central Government as well as the State Government fall within the meaning of “dealer” in section 2(e) of the Act read with explanation III, therefore the Tribunal has erred in holding that the Central Government is not a dealer. He contends that article 285 of the Constitution of India does not exempt the Government from payment of tax, therefore the M.E.S. was rightly assessed the sales tax. With regard to the merits of the case, it is submitted that under the contract, admittedly, M.E.S. has supplied cement and steel to the contractor for use in the construction of the building which was entrusted to the contractor, therefore, the turnover for the supply of goods to the contractor is liable to be assessed to sales tax.
4. We shall take up the first contention of the learned Government Pleader.
Section 2(e) of the Act, in so far as it is relevant for our purpose, reads as under :
“‘Dealer’ means any person who carries on the business of buying, selling, supplying or distributing goods (or delivering goods on hire purchase or on any system of payment by instalments, or carries on or executes any works contract involving supply or use of material directly or otherwise, whether for cash, or for deferred payment, or for commission, remuneration or other valuable consideration and includes –
(i) to (iv)……….
Explanations I and II……….
Explanation III. – The Central Government or the State Government which, whether or not in the course of business, buys, sells, supplies or distributes goods, directly or otherwise, for cash or for deferred payment or for commission, remuneration or other valuable consideration shall be deemed to be dealer for the purposes of this Act.”
5. From the perusal of the definition of “dealer”, extracted above, it is clear that any person who carries on the business of buying, selling, supplying or distributing goods or delivering goods on hire purchase or on any system of payment by instalments or carries on or executes any works contract involving supply or use of material directly or otherwise, whether for cash or for deferred payment or for commission, remuneration or other valuable consideration falls within the meaning of the Act. The definition includes various categories of persons including local authority and society within the meaning and the ambit of the definition of “dealer”. So far as the Central Government or the State Government is concerned, explanation III to the definition of “dealer” puts the matter beyond the pale of controversy as it says that if the Central Government or the State Government buys, sells, supplies or distributes goods for cash or for deferred payment or for commission, remuneration or other valuable consideration whether or not in the course of business, shall be deemed to be “dealer” for the purposes of the APGST Act.
6. Mr. Dhilleswara Rao, the learned counsel for the respondent, vehemently contends that inasmuch as the Union of India is not a person, M.E.S. cannot be treated as a dealer. This contention of the learned counsel completely ignores the existence of explanation III, referred to above. We may note here that the words “Central Government and the State Government” formed part of the definition of “dealer” prior to July 1, 1985 but they were deleted from clause (i) and explanation III was added by Act 18 of 1985 with effect from July 1, 1985. Thus it is clear that even before July 1, 1985 “the Central Government” and “the State Government” were within the inclusive definition of expression “dealer” with effect from that date by virtue of explanation III “the Central Government” and “the State Government” continue to be “dealer” for purposes of the Act.
7. It will be apt to refer to the definition of the expression “sale” as contained in section 2(n) of the Act and explanation VIII thereto, in so far as they are relevant for our purpose.
“2(n) ‘Sale’ with all its grammatical variations and cognate expressions means every transfer of the property in goods whether as such goods or in any other form in pursuance of a contract or otherwise by one person to another in the course of trade or business, for cash, or for deferred payment, or for any other valuable consideration or in the supply or distribution of goods by a society (including a co-operative society), club, firm or association to its members, but does not include a mortgage, hypothecation or pledge of, or a charge on goods.
Explanation I to VII………….
Explanation VIII. – Every transfer of property in goods by the Central Government or the State Government for cash or for deferred payment or for any other valuable consideration, whether or not in the course of business shall be deemed to be a ‘sale’ for the purpose of this Act.”
8. From a plain reading of clause (n) and explanation VIII it becomes explicit that every transfer of property in goods by the Central Government or the State Government, whether or not in the course of business, either for cash or for deferred payment or for any other valuable consideration would amount to “sale” for the purpose of the Act.
9. The submission that Explanation VIII was inserted with effect from August 1, 1986 and assessment relates to 1985-86, would make no difference because even before the insertion of the explanation, profit-motive was not relevant for the purpose of business under the Central Sales Tax Act. From the above discussion, it follows that the Central Government is a “dealer” within the meaning of the expression in section 2(e) of the Act.
10. It is then contended by Mr. Dhilleswara Rao that even if M.E.S. is a dealer, article 285(1) of the Constitution exempts the Central Government from payment of tax.
Article 285(1) of the Constitution of India reads as under :
“285. Exemption of property of the Union from State taxation. – (1) The property of the Union shall, save in so far as Parliament may by law otherwise provide, be exempt from all taxes imposed by a State or by any authority within a State.
(2)…………”
11. It is true that by virtue of this article, the property of the Union is exempted from all taxes imposed by a State or by any authority within a State and that this exemption is subject to the law that might be made by the Parliament. Admittedly, there is no law made by the Parliament governing the said provision. The question then arises, whether the sales tax would fall within the concept of “all taxes” in article 285(1).
12. In In re, Sea Customs Act (1878) AIR 1963 SC 1760 the Special Bench of the Supreme Court while explaining the nature of excise duty in the context of section 20(2) of the Customs Act, observed in para 25 as follows :
“This will show that the taxable event in the case of duties of excise is the manufacture of goods and the duty is not directly on the goods but on the manufacture thereof. We may in this connection contrast sales tax which is also imposed with reference to goods sold, where the taxable event is the act of sale. Therefore, though both excise duty and sales tax are levied with reference to goods, the two are very different imposts; in one case the imposition is on the act of manufacture or production while in the other it is on the act of sale. In neither case therefore can it be said that the excise duty or sales tax is a tax directly on the goods for in that event they will really become the same tax. It would thus appear that duties of excise partake of the nature of indirect taxes as known to standard works on economics and are to be distinguished from direct taxes like taxes on property and income.”
13. In a recent judgment of the Full Bench of our High Court, in W.P. No. 17664 of 1989, dated March 18, 1996 (reported as Union of India v. State of Andhra Pradesh the question, whether the sales tax can be levied on the turnover relating to sale of seized property by the Collector, Central Excise and Customs, was considered. It was, inter alia, contended that levying of tax is within the teeth of article 285. Speaking for the Full Bench, the honourable the Chief Justice observed, after referring to the judgment in In re, Sea Customs Act (1878) AIR 1963 SC 1760, as follows :
“……….. We are therefore of opinion reading article 289 and its complementary article 285 together that the intention of the Constitution-makers was that article 285 would exempt all property of the Union from all taxes on property levied by a State or by any authority within the State while article 289 contemplates that all property of the States would be exempt from all taxes on property which may be leviable by the Union. Both the articles in our opinion, are concerned with taxes directly either on income or on property and not with taxes which may indirectly affect income or property. The contention therefore on behalf of the Union that these two articles should be read in the restricted sense of exempting the property or income of a State in one case and the property of the Union in the other from taxes directly either on property or on income as the case may be, is correct.”
14. From the above discussion, it emerges that taxes referred to in articles 285 and 289 of the Constitution are “all taxes” directly on property.
15. Mr. Dhilleswara Rao has, however, relied upon the judgment in Union of India v. State of Punjab to contend that the M.E.S. is exempt from sales tax under the State Sales Tax Act. In that case the Union of India through Railway Department questioned the imposition of road tax under the Punjab Motor Vehicles Taxation Act, 1924. The Learned single Judge of the Punjab and Haryana High Court held that the provisions of article 285(1) of the Constitution clearly bars the imposition of the tax. It was also observed that the provisions of clause (2) of article 285 of the Constitution were not applicable. That is a case where the property of the Union was subjected to direct tax and as pointed out above, exemption contemplated under article 285(1) of the Constitution, is confined to direct taxes only. Therefore, that judgment does not advance the case of the petitioner.
16. The learned counsel next relied upon the judgment of the Supreme Court in Union of India v. Purna Municipal Council . In that case Union of India claimed exemption from service charges on the vehicles of the Railways for the period from 1954 to 1960. The Bombay High Court did not accept the defence of the Union of India that no tax could be levied in view of the provisions of article 285 and section 135 of the Railways Act. Reversing the judgment of the Bombay High Court, the Supreme Court held that section 135 of the Indian Railways Act gets saved under article 285(1) of the Constitution but not under clause (2) of article 285 of the Constitution. Section 135 of the Indian Railways Act provides taxation of railways by local authorities. That was the case of direct tax on Railways and not the case of any indirect imposition of tax. We have already pointed out that exemption as contemplated under article 285(1) is in regard to direct taxes but not indirect taxes. Therefore, the above judgment of the Supreme Court would not help the petitioner.
17. For the above reasons, we hold that levying of sales tax on the turnover of M.E.S. would not be exempt under article 285(1) of the Constitution.
18. Lastly it is submitted that supply of goods by M.E.S. to the contractor does not amount to sale because M.E.S. has supplied the goods for the purpose of its own use but not for the use of the contractor. In other words, what is contended is that the supply of cement and iron was made to the contractor for being utilised in the construction work of M.E.S. so the property in the goods did not pass to the contractor. In view of the judgment of the Supreme Court in N.M. Goel and Co. v. Sales Tax Officer, Rajnandgaon , we need not elaborately discuss the contention of the learned counsel for the petitioner as the point is covered and so the contention is liable to be rejected. In that case P.W.D. supplied iron, steel and cement to the contractor for use in the construction work which was entrusted to the contractor by P.W.D. Clause 10 of the agreement provided that all the material 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. The price of the iron and steel so supplied to the contractor was to be deducted from the final bill for the works done by the contractor as per the terms of the agreement. On considering the said clause, the Supreme Court held that read in the proper light that clause indicated that 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 P.W.D.
19. A Division Bench of this Court of which one of us (Syed Shah Mohammed Quadri, J.) was a member in T.R.C. No. 256 of 1990, dated February 6, 1996 (reported as Rashtreeya Ispat Nigam Ltd. v. State of Andhra Pradesh [1996] 102 STC 456), held that supply of steel, cement and A.C. sheets for construction of its own building by the assessee-company to the contractor amounts to “sale” of those goods and the turnover was liable to be taxed.
20. From the above discussion, it follows that the order of the Tribunal has to be set aside and it is accordingly set aside.
21. The T.R.C. is allowed but, in the circumstances of the case, without costs.
22. Petition allowed.