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Rashtriya Ispat Nigam Ltd. v. State Of A.P .
Factual and Procedural Background
The appellants entered into contracts whose clauses governing the supply of materials were held by both the Tribunal and the High Court to be substantially similar to the clause examined by the Supreme Court in N.M. Goel and Co. v. STO (1989) 1 SCC 335. Challenging the High Court’s affirmation of tax liability on such supplies, the appellants brought the present appeals before the Supreme Court.
Legal Issues Presented
- Whether, under the terms of the contracts in question, the supply of materials by the employer to the contractor constituted a “sale” liable to sales tax, in light of the precedent set in N.M. Goel and Co. v. STO.
Arguments of the Parties
Appellants' Arguments
- Distinct factual matrix: The appellants contended that Goel concerned a different issue and therefore did not govern the present dispute.
- The contractor in Goel allegedly had liberty to retain supplied goods, whereas the present contracts imposed different conditions.
- In Goel, deduction of the value of goods occurred upon supply; in the present contracts, it was said to occur upon use.
- The contracts now under scrutiny contained penal provisions for non-return of goods, unlike those in Goel.
- The disputed contracts did not employ the word “sale,” and allegedly restricted the contractor’s use of goods, differentiating them from Goel.
- On the above grounds, the appellants urged reconsideration of Goel.
Respondent's Arguments
The opinion does not contain a detailed account of the respondent's legal arguments.
Table of Precedents Cited
| Precedent | Rule or Principle Cited For | Application by the Court |
|---|---|---|
| N.M. Goel and Co. v. STO (1989) 1 SCC 335 | Supply of materials by the employer (PWD) to the contractor under clause 10 of the contract constitutes a sale liable to tax. | The Court found the contractual clauses before it “substantially similar” to those in Goel and applied the same principle, concluding that a taxable sale occurred. |
Court's Reasoning and Analysis
Examining the contractual clauses presented, the Supreme Court held that they were “substantially similar” to the clause interpreted in Goel. The Court rejected the appellants’ asserted distinctions—regarding retention rights, timing of deductions, penal provisions, terminology, and usage restrictions—as immaterial, concluding that the “overall” legal effect of the contracts mirrored that in Goel. Accordingly, the Court reaffirmed that the passage of property in the supplied materials, combined with the set-off of their value against payments due, amounted to a sale liable to tax. It further found “no reason whatsoever” to doubt the correctness of Goel or to reconsider that precedent.
Holding and Implications
The appeals are dismissed with costs.
By affirming the High Court’s decision and explicitly upholding N.M. Goel and Co. v. STO, the Court confirmed that contracts containing clauses materially identical to those in Goel give rise to taxable sales when materials are supplied to contractors. The immediate effect is that the appellants remain liable for the assessed tax; no new legal doctrine was created, but the existing precedent was reinforced.
1. The High Court, in the judgment and order under appeal, has found that the clauses of the contracts in question are very similar to the relevant clause of the contract which was considered by this Court in N.M Goel and Co. v. STO (1989) 1 SCC 335. We have been taken by learned counsel for the appellants through the clauses in question, upon the basis of which both the Tribunal and then the High Court concluded the matter against the appellants and are satisfied that they are substantially similar to the clause that was considered in Goel case (1989) 1 SCC 335 and to the same effect.
2. Learned counsel submitted that Goel case (1989) 1 SCC 335 dealt with a different issue and, therefore, did not cover what is in question before us. In para 7 of the judgment in Goel case (1989) 1 SCC 335 it is said:
“The question, therefore, was whether there was sale of iron, steel and cement by the PWD while supplying those materials for the construction work undertaken by the appellant.”
Again, in para 8 it is said:
“8. The question, therefore, is whether there was sale of goods in view of the contract between the parties whereunder the custody and control of the goods remained with the PWD and goods were only used in the construction under the contract.”
Upon this question, the judgment delivered an answer. It is the same question that is before us, and the answer that was delivered in Goel (1989) 1 SCC 335 judgment applies with equal force here. It was held:
“For the purpose of performance, the contractor was bound to procure materials. But in order to ensure that quality materials are procured, the PWD undertook to supply such materials and stores as from time to time required by the contractor to be used for the purpose of performing the contract only. The value of such quantity of materials and stores so supplied was specified at a rate and got set off or deducted from any sum due or to become due thereafter to the contractor.”
For this reason it was held that there was a sale, liable to tax. It was said:
“In the instant case, 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 PWD. By appropriation and by the agreement, there was a sale as envisaged in terms of clause 10 set out hereinbefore. Therefore, in our opinion, there was a sale which was liable to tax.”
3. Learned counsel submitted that there were differences between the present case and Goel case (1989) 1 SCC 335 in that in Goel case (1989) 1 SCC 335 the contractor had the liberty to retain the goods that were supplied to him by the employer; the deduction of the value thereof was on supply, not on use; there was no penal provision which would operate for non-return of such goods; the contract used the word “sale”; and there was no restriction on the use of the goods. We find no material difference between the contracts that we are to construe here and the contract in Goel case (1989) 1 SCC 335. Their effect, overall, is the same.
4. Certainly, there is no reason whatsoever to conclude, as was urged, that Goel case (1989) 1 SCC 335 was not properly decided and that it requires reconsideration.
5. The appeals are dismissed, with costs.
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