The use of explosives in a work contract does not constitute a taxable sale under the Rajasthan Sales Tax Act, as they are consumed in the process.

ORDER :

1. Heard the parties.

2. This civil revision under Section 86 of the Rajasthan Sales Tax Act, 1994 (the Act) challenges order of the Rajasthan Tax Board, Ajmer dated 20.12.2002 passed in Taxation Appeal No. 400/2001.

3. The Tax Board has affirmed order dated 07.11.2000 passed by the Appellate Authority in Appeal No. 323/2001 whereby, the Appellate Authority partially set aside the order of the Commercial Tax Officer dated 15.09.2000.

4. The Commercial Tax Officer had taxed the sole respondent with liability to pay Rs.18,87,210/-.

5. A brief fact of this case is that the sole respondent-M/s Shree Ram Traders at Bhilwara was engaged in the business of mines blast to facilitate the service recipient a smooth mining exercise. For that purpose, the respondent used to enter into agreement with the service recipient. The respondent had license to purchase explosives for the purpose. The respondent had purchased explosives to the tune of Rs.80,18,829/- for performance of a work contract with the declaration in Form ‘C’. The respondent produced the books of accounts disclosing the fact that entire explosives were used to perform the contract work of explosion.

6. The Assessing Officer (Commercial Tax Officer) made assessment for the year 1997-98 and issued notice to the respondent to produce the relevant documents.

7. The respondent contended that use of material to perform contract work was not within the definition of “Sale” as defined under Section 2(38) of the Act. However, the Assessing Authority treated the use of explosives as “deemed sale” to the service recipient and imposed tax as well as interest of Rs.11,47,172/- and fine of Rs.7,42,640/- besides other nominal penalties imposed under Section 61 and 68 of the Act of 1994.

8. The respondent challenged the order of the Assessing Authority in the above referred appeal. The Appellate Authority was of the view that purchase of explosives and use of the same in performance of contractual act was not a “sale” transaction for taxation, therefore, the Authority set aside the fine amount aforesaid, as there was no case of taxation. The assessed tax was also set aside. However, other minor penalties were upheld for delayed submission of the return.

9. The Tax Board did not find any infirmity with the Appellate Court’s order, hence, dismissed the appeal before it. Thereafter, this civil revision by the aggrieved party.

10. Learned counsel for the petitioner contends that the questions of law involved in this civil revision are:

(i) “whether the Tax Board has erred in law in not interfering with the Appellate Court’s order which was against the law as explosives for use of job work by the respondent comes under the definition of sale under the provisions of Section 2(38) of the Act.”

(ii) Second question is “whether the First Appellate Authority as well as Rajasthan Tax Board erred in law in relying upon the judgment of the Hon’ble Supreme Court in Rainbow Colour Lab & Anr. Vs. State of M.P. (2000) 2 SCC 385, which was already reversed by the Hon’ble Supreme Court in the case of Associated Cement Companies Limited Vs. Commissioner of Customs, (2001) 4 SCC 593.”

(iii) Thirdly “whether the Courts below have erred in setting aside order of the Assessing Authority without considering the 42nd Amendment in the Constitution of India permitting the taxing authority to impose tax and interest on the explosives used in work contract.”

11. Learned counsel for the respondent contends that the respondent had paid tax at the time of purchase of explosives, which is not disputed. The respondent was using explosives under licence as service provider to the service recipient. Without explosives, the respondent could not have performed its part of contract as the service recipient without licence could not have purchased or retained explosives nor it is a case of the plaintiff that the explosives were sold for consideration to anyone. Rather, specific case of the taxing authority is that even use of the explos