Contractors’ Purchases from Unregistered Dealers Attract Purchase Tax: Madras HC

State of Tamil Nadu Vs I. Vetrivel (Madras High Court)

Summary: The State filed seven tax revisions challenging a common order of the Tamil Nadu Sales Tax Appellate Tribunal, Madurai, which had confirmed appellate relief granted to civil contractors against purchase tax and penalty demands. The contractors had purchased sand, gravel and jelly from unregistered dealers and used those materials in executing works contracts. The assessments concerned years under the Tamil Nadu General Sales Tax Act, 1959 (TNGST Act), and the Tamil Nadu Value Added Tax Act, 2006 (TNVAT Act).

The assessees maintained that these purchases did not satisfy the conditions for purchase tax under Section 7-A of the TNGST Act or Section 12 of the TNVAT Act. They argued that the word “otherwise” in the provision qualified “sale”, and that construction of a building did not amount to manufacturing other goods. They also contended that tax on the deemed sale value of goods transferred through a works contract under Section 3-B excluded a further purchase tax levy on the same materials and that the contrary approach would result in double taxation.

The Revenue relied principally on the Constitution Bench ruling in *Asstt. Commr. (Intelligence) v. Nandanam Construction Co.* It submitted that materials bought from unregistered dealers and consumed in construction attracted purchase tax even though the resulting building was immovable property. According to the Revenue, Section 3-B taxed a different event and did not displace Section 7-A.