PETITIONER:
STATE OF GUJARAT (COMMISSIONER OF SALES TAX, AHMEDABAD)
Vs.
RESPONDENT:
M/S. VARIETY BODY BUILDERS
DATE OF JUDGMENT26/04/1976
BENCH:
GOSWAMI, P.K.
BENCH:
GOSWAMI, P.K.
KHANNA, HANS RAJ
CITATION:
1976 AIR 2108 1976 SCR 131
1976 SCC (3) 500
CITATOR INFO :
RF 1977 SC 197 (6)
D 1977 SC1537 (36)
RF 1984 SC 744 (25)
ACT:
Bombay sales Tax Act-Contracts for sale of goods and'
work contracts-Tests for deciding works contracts.
HEADNOTE:
The respondents entered into three written contracts
with the Railways for the construction of railway coaches
according to the design provided by them, on the under-
frames supplied by the Railways. The contractor was required
to make security deposit for the due fulfilment and
completion of the contract which in the event of breach, was
liable to be forfeited and confiscated. Supply including
manufacture, assembly, fitting, fixing and finishing of all
constructional materials and fittings including timber was
by the contractor. The Railways were required to supply
electric fitting; Railway staff would work in association
with the contractor's staff for installation of electrical
equipment; Railway site was provided for the work and for no
other purpose. The Railways had the right of inspection at
all times and of maintenance of control over standard of
workmanship requiring rectification of work and replacement
of materials when ordered.
The Sales Tax officer, holding that the transactions
were sales, charged them to tax. The respondents' appeal to
the Assistant Commissioner of Sales Tax. as also a revision
application before the Deputy Commissioner of Sales Tax and
the Tribunal were unsuccessful. On reference, the High Court
held that the contracts were works contracts.
Dismissing the appeals,
^
HELD: (1) From the totality of the material terms and
conditions in the agreement it is not possible to hold that
the parties intended that the contractor transferred the
property in the railway coaches to the Railways after its
completion. The essence of the contract or the reality of
the transaction as a whole indicates that the contract was a
contract for work and labour. [139 F]
(2) The predominant element in the contract was the
work and labour aspect and supply of materials was only
accessory although the materials were definitely necessary
for the execution of the work. The term that if the
contractor died, his legal representatives would have no
interest whatsoever in the agreement save in respect of a
claim for the money due and for the return of the security
deposit, clearly showed that the contract was a works
contract. The unfinished work became the property of the
Railways and the legal representatives were entitled only to
claim for the value of the work done. In the event of the
death of the contractor. there was no provision for the
handing over of the unfinished coaches by the legal
representatives to the Railways. In such an event the
Railways automatically because the owner of the unfinished
property. [140E-G]
T. V. Sundaram Iyengar & Sons v. The State of Madras
(1975) 35 STC 24 and Patnaik and Company v. The State of
Orissa, (1965) 16 STC 364, distinguished .
Commissioner of Commercial Taxes, Mysore v. Hindustan
Aeronautics Ltd. (1972) 29 STC 438; State of Gujarat v.
Kailash Engineering Co. (1967) 19 STC 13; State of Madras V.
Richardson & Cruddas Ltd., (1968) 21 STC 245: Government of
Andhra Pradesh: v. Guntur Tobaccos Ltd., (1965) 16 240 and
132
Commissioner of Sale Tax, M.P. v. Purshottam Premji, (1970)
16 STC 38, followed.
JUDGMENT:
CIVIL APPELLATE JURISDICTION : Civil Appeal Nos. 1492
and 1493 of 971.
Appeals by Special Leave from the judgment and order
dated the 7th and 9th November, 1 970 of the Gujarat High
Court at Ahmedabad in Sales Tax Reference No. 5; of 1969
S. T. Desai and M. N. Shroff; for the Appellants.
V. S. Desai, Vimal Dave, Ram Phal, Ganpat Rai, (Mrs.)
Sheil Sethi and (Miss) Kailash Mehta: for Respondent.
The Judgment of the Court was delivered by
GOSWAMI, J.-This judgment will govern both the appeals.
These two appeals by special leave are directed against
the common judgment of the Gujarat High Court ill Sales Tax
Reference No. 5 of 3969 relating to two periods, namely, (1)
from 24th October 1955 to 31st March, 1956 and (2) from 1st
April, 1956 to 31st March, 1 1957.
The Tribunal had earlier delivered a common judgment in
two revision applications No. 121 and to. 12′ of 1961 and
made a composite reference to the High Court under the
Bombay Sales ‘Tax Act stating the following question for
answer
“Whether on the facts and in the circumstances of
the case the three contracts for construction of
coaches on the under-frames supplied by the Railway
Administration, the contracts containing similar terms
were contracts for sale of goods and not works
contracts?” the facts appearing from the statement of
case are as fellows :-
The facts appearing from the statement of case are as
follows:-
The respondent, M/s. Variety Body Builders, Baroda,
entered into three contracts with the Western Railway
Administration for construction of railway coaches on the
under-frames supplied by the said railway Administration.
The three contract were reduced into writing and contained
the terms and conditions under which the con tracts were to
be performed. The first agreement dated September 17, 1954
was for construction of 25 N.G. coaches. The second
agreement dated July 11, 1955, was in respect of
construction of 6 T.L.R. coaches. The third agreement dated
January 14, 1956, was for construction of 25 N.G. coaches.
The Sales Tax officer held that the transactions relating to
the construction o. the said coaches were transactions of
sales of these coaches by the respondent. On that basis the
respondent was assessed at Rs. 2,72,803/8/- for the first
period and at Rs. 3,82,820/- for the second period. The
respondent’s appeals to the Assistant Commissioner of Sales
Tax were unsuccessful. The revision applications of the
respondent before the Deputy Commissioner of Sales Tax and
later before the Tribunal met with the
133
same fate. The Tribunal, however, referred the question of
law. as set out earlier to the High Court and the High Court
answered the same in favour of the respondent and hence
these appeals by special leave.
The only question with which we are concerned in these
appeals is whether the contracts entered into by the
respondent with the Railway Administration for construction
of railway coaches are contracts for sale of goods or works
contracts.
Since the three contracts are substantially similar the
High Court and the authorities below took note of the
recitals of the third contract dated January 14, 1965, and
we will also take the same into consideration.
Mr. S. T. Desai appearing on behalf of the appellant
and Mr. Ram Phal appearing on behalf of the respondent took
us through all the clauses of the agreement and pressed
their rival viewpoints. Mr. Desai submits that from the
totality of the conditions laid down in the agreement the
contract is one for sale, being transfer of property in the
railway bogies as a unit of goods and, therefore, the
transaction is liable to Sales Tax. Mr. Ram Phal on the
other hand, relying on the same terms and conditions in the
contract, submits that it is a pure and simple works
contract and not a contract for sale of goods.
It is well-settled that when there is a written
contract it will be necessary for the Court to find out
therefrom the intention of the parties executing the
particular contract. That intention has to be primarily
gathered from the terms and conditions which are agreed Upon
by the parties. We will, therefore, immediately turn our
attention to the agreement in question.
The preamble of the agreement shows that it is all
agreement entered into between the Railway Administration
and the respondent described as “the contractor”.
The first clause describes the “nature of work ‘. It
states “the contractor hereby agrees to undertake the
building of 25 Nos. Narrow Gauge Third Class Bogie Coaches .
on I.R.S. under-frames to be provided by the Western Railway
to the design indicated at the rate of Rs. 19141/- only.
the said work of building bodies will be carried out by the
contractor in the area of premises of the Western Railway
Workshop at Pratapnagar, Baroda or at such other location as
may be mutually agreed upon”. It also appears in the second
part of clause (1) that each employee working under the
contractor “for this work” will have a gate pass issued in
his favour on a deposit of Rs. 5/- for each gate pass. It is
also stated in the second part of clause (1) that “all gate
passes issued to the contractor arc returnable within a week
of termination of the contract”.
Clause (3) provides for security deposit “for the due
fulfilment and completion of this contract”. Clause (3)
further says that the security deposit will be retained by
the Administration “for the due performance of and
observance of the terms and conditions of this contract”
134
and the same is liable to forfeiture “in the event of any
breach on the part of the contractor of the terms and
condition of this contract”.
Clause (4) provides for deduction of 10 per cent from
each progressive bill submitted by the contractor and the
security deposit shall be refunded to the contractor “only
on successful completion or termination of this contract”.
Clause (9) provides that constructional material and
fittings must be supplied by the contractor which should he
ordinarily as per the Railway’s standard. “The provision of
the hand-brake arrangements in the Guards compartment will
be done by the Railway”.
Clause (11) says that the contractor is required to
supply carpentry labour for equipping coaches with electric
lights, fans switches and regulators. The appropriate
Railway staff will work in association with the contractor’s
staff to an extent required for the installation of
electrical equipment and all electrical fittings will be
supplied by the Railway
Clause (13) provides for removal of rubbish, debris or
temporary structure at contractor’s own cost on the
expiration of the contract in the event of earlier
termination of the contract.
Clause ( 14) says that the contractor shall provide all
essential equipment, tools and plant for satisfactory
execution of the work. By clause
By clause (15) “The contractor is required to deliver a
minimum number of two coaches per month starting from the
expiry of six months from the date of signing this
agreement”.
Clause (16) says that “in the event of the contractor
failing to carry out and complete the work within the period
stipulated as herein before provided the contractor shall be
liable to pay to the Administration by way of ascertained
and liquidated damages a sum equivalent one per cent of the
value of the work arrears for each and every month or part
of a month by which the contractor shall be in default upto
a maximum of 20% of the value of the contract but the
contractor shall not by reason of the recovery by any means
by the Administration of such damages be relieved from his
other obligations and liabilities under the contract. The
recoveries may, be made from the security deposit or running
bills or any sums due to the contractor”
Clause (17) may be set out:
“The contractor shall be responsible for the safe
custody of carriages under construction as well as of
the material supplied by the Administration for the
purpose. till the material or the carriages are taken
over by the Administration. Dates of completion of the
building work will be deemed to be the respective dates
on which the Chief Mechanical Engineer or his
authorised representative certifies each coach as
having been built to his satisfaction”
135
Clause (18) provides that the Railway authorities are
free. to inspect the work. “The Chief Mechanical Engineer or
his authorised representative will be the sole judge to
determine whether the standard of workmanship is according
to the Railway`s requirement and . whether any part or parts
of the carriage require replacement due to bad or
indifferent workmanship.”
Clause (19) provides that “the contractor shall not
under any circumstances sub-let this contract either in part
or in full without the previous consent in writing of the
Chief Mechanical Engineer….”
Clause (20) provides for termination of the contract by
giving one month’s notice to the contractor “in the event of
the contractor failing to execute the contractual duties
with diligence, competence and expedition”.
Clause (21) provides for the duration of the contract
which in the normal course be in force for a period of 16
months from the date of signing of the same. There is also
provision therein for allowing such additional time as the
Administration may consider to be justified by the
circumstances of the case.
Clause (22) provides for contractor’s liability for
damages in the event of failure to execute the work with
diligence and expedition or in complying with any orders
given by the Chief Mechanical Engineer or his authorised
representative from time to time.
Clause (23) provides that “the contractor will present
bill through District Mechanical Engineer, Partapnagar for
payment on the basis of certified completion in terms of
coaches completed and handed over to him”.
Clause (25) states that “if during, the continuance of
this agreement the contractor shall die or be adjudicated
insolvent or if` the contractor being a company shall enter
into liquidation whether voluntary or compulsory…. this
agreement shall absolutely cease and determine and the legal
representative of the contractor or/his assignee in
insolvency or (in the case of a company) the liquidators
shall have no interest whatsoever under this agreement other
than in respect of a claim for the money due for the work
done under this contract and for the return of the security
deposit subject to the provisions herein contained
Clause (30) makes provision for fair wages to the
labourers engaged by the contractor.
Clause (31) says that the contractor shall have to
abide by safety rules.
Clause (32) provides that the contractor shall not
employ children under l:`j years of age.
Clause (33) says that the contractor shall comply with
the provisions of the Payment of Wages Act and the rules
made thereunder.
136
Clause (34) provides that “the contractor shall pay a
nominal rent of Re. 1/- per mensem for the area which may be
allotted to him i-or the purposes of building the coaches”.
Clause (35) provides for water and conservancy charges
to be paid by the contractor
Clause (36) provides for supply of electrical energy to
the contractor on payment.
Clause (38) says that certain conditions of ‘Tender
shall be deemed to. be incorporated in the agreement. These
tenders are, however. not before us.
Before we proceed further we may. Observe that for the
meaning of` the expression “sale of goods” we will have to
derive assistance for the legal connotation of those words
from the provisions of the Sale of Goods Act? 1930. As has
been held by a Constitution Bench of this Court in the State
of Madras v Gannon Dunkerly & Co. (Madras Ltd’) “that, both
under the common law and the statute law relating to sale of
goods in England and in India, to constitute a transection
of sale there should be an agreement, express or implied,
relating to goods to be completed by passing of title in
those goods. It is of the essence of this concept that both
the agreement and the sale should relate to the same subject
matter on the true interpretation. Of the expression ‘sale
of Goods’ there must be an agreement between the parties for
the sale of the very goods in which eventually property
passes”.
Bearing in mind the above legal concept of the sale of
goods we will have to consider whether the terms of the
contract, which we have set out earlier, can be construed in
favour of a contract for sale of the railway Coach which
were constructed by the respondent.
Mr.Desai is right when he submits that the word
contractor appearing.” in the preamble is not decisive on
the question. As we have stated earlier the entire document
with all the relevant and material clauses throwing light
upon the real intention of The parties and the real nature
of the transaction must be given due weight in coming to a
conclusion one way or the other.
The following material features in the agreement
immediately draw our attention so far as may be relevant in
considering whether the contract is one of sale or contract
of work and labour:
(i) Undertaking by the Contractor work of
building bodies on under-frames supplied. by
Railway, according to design provided by a
Railway (Cl. 1a).
(2) Security deposit by contractor for due
fulfilment and completion of the contract
(Clause 3).
(3) Confiscation or forfeiture of security
deposit in the event of any breach by the
contractor of terms and conditions of the
contract (Clause 3).
(1) 9 S.T.C. 353.
137
(4) Deduction of 10% from each progressive bill
of contractor to cover any likely loss,
damage etc. (Clause 4) .
(5) Import licence and foreign exchange
arrangements by contractor (Clause 6).
(6) Supply, including manufacture, assembly,
fitting, fixing and finishing, of all
constructional materials and fittings
including timber by the contractor (Clause
9).
(7) Provision of hand-brake arrangements in the
Guard’s compartment by Railway (Clause 9).
(8) Supply of electrical fittings by Railway (Cl.
11).
(9) Railway staff working in association with
contractor’s staff for installation of
electrical equipment. (Clause 11) .
(10) Use of Railway site provided for the work and
for no other purpose. (Clause 12).
(11) Removal of rubbish, debris or temporary
structure at contractor’s own cost. (Clause-
13).
(12) Earlier termination of contract also
envisaged. (Clause 13) .
(13) Essential equipment to be provided by
contractor. for execution of the work.
(Clause 14).
(14) At least two coaches to be delivered per
month after expiry of six months from the
signing of the con tract. (Clause. 15) .
(15) Contractor’s liability to pay liquidated
damages in the event of failure to carry out
and complete the work within stipulated
period. (Clause 16).
(16) Provision for running bills. (Clause 16).
(17) Responsibility of contractor for safe custody
of carriages under construction as well as of
the materials supplied by Railway till they
are taken over by Rail way. (Clause 17) .
(18) Date of completion of binding work on the
date of certification by Railway’s
representative to his satisfaction. (Clause
17).
(19) Right of inspection of the work by Railway
at all times and of maintenance of control
over standard of workmanship requiring
rectification of work and re placement of
materials when ordered. (Clause 18).
(20) No subletting of contract wholly or in part
without the previous written consent of Chief
Mechanical Engineer. (Clause 19).
138
(21) Authority to terminate contract by one
month’s notice in the event of the contractor
s lack; of diligence, competence and
expedition in executing contractual duties.
(Clause 20).
(22) Any losses incurred by Railway and occasioned
through failure of contractor to company with
contractual obligations will be, deducted
from security deposit. (Clause 20).
(23) Contract to be in force for 16 months unless
extended on reasonable ground subject to
waiver of loss or damage by Railway. (Clause
21).
(24) Contractor’s liability for damage for failure
to execute the work with diligence and
expedition or to comply with orders of
Railway Administration. (Clause 22).
(25) Bills to be submitted by contractor on the
basis of certified completion in terms of
coaches completed. and handed over to the
District Mechanical Engineer. (Clause 23 ) .
(26) Contractor, his heirs, executors or administrators to indemnify Railway
Administration, from and against all claims
including claims under the Workmen’s
Compensation Act, Payment of Wages Act,
Factory Act, etc. (Clause 24).
(27) In case of contractor’s insolvency of death
agreement shall absolutely cease and
determine and the legal representatives of
the contractor or the liquidators shall have
no interest whatsoever under the agreement
other then in respect of a claim for the
money due for the for the work done under
the contract and for the return of the
security deposit subject to the pro visions
of the agreement (Clause 25)
(28) Arbitration clause in the event of any
dispute in connection with the contract.
(Clause 28).
(29) Contractor to pay fair wages to labourers
employed. (Clause 30).
(30) Contractor to abide by safety rules. (Clause
31).
(31) No employment of children under 15 years by
con tractor. (Clause 32).
(32) Responsibility of contractor under Payment of
Wages Act. (Clause 33).
(33) Nominal rent of Re. 1/- per month for
occupation of the Railway area for the
purpose of building the coaches. (Clause 34).
139
(34) Contractor to pay to the Railway conservancy-
charges and for supply of electrical energy.
(Clauses 35 and 36) .
Reading the agreement as a whole and bearing in mind
the above features, is it possible to conclude that what is
contracted is to sell the railway coach constructed by the
contractor to the Railway ? In . that event the railway
coach when constructed by the contractor to the Railway?
In that event the railway coach when constructed must be as
a unit the property of the contractor. But has the assessee
alone contributed to the result ? There were materials
supplied by railway. There was labour supplied by Railway.
It is different from the case of a bus-body fitted into the
chassis with all materials supplied by the contractor and
all skill and labour contributed by the contractor.
A contracts to sell a certain article to must be the
owner of the article and B must be at the receiving end
having no interest in the article prior to passing of. the
property therein. Is the contractor owner of the railway
coach when It was completed? the answer must be in the
negative. Apart from the fact that the under frame is not
of the contractor (which may in a given case be a neutral
factor) not all his materials nor all his labour and skill
contributed to the coach. The railway supplied men and
materials although the substantial portion is for the
contractor. This goes to bring out the intention of the
parties in they were intent upon performance of the work the
manner of the work the quality of the materials used in the
work and upon completion of the work in the most efficient
way resulting ultimately in a completed coach. The
intention of the parties at the time of entering upon the
contract was not to transfer any completed railway coach by
the contractor to the Railway. The end-product, being the
railway coach, is the result of work, labour and materials
of the contractor as well as of the railway as also of the
latter’s constant supervision and control.
From the totality of the material terms, and conditions
in the agreement set out above, it is not possible to hold
that the parties intend that the contractor transfers the
property in the railway. coach to the Railway after its
completion. The essence or the contract or the reality of
the transaction as a whole indicates that. the contract is a
contractor work and labour.
Mr. Desai submits that clauses 15 ,17 and 23 in
particular make it absolutely clear that the property in a
unit in the shape of a completed railway coach passes only
on handing over of the same to the District Mechanical
Engineer after the same has been complete and the specified
authority certifies the coach as having been built to his
satisfaction. He particularly draws our attention to the
word” deliver” in clause 15 and the words” taken over” in
clause 17 and ” handed over’ in clause 23 . According to
Mr. Desai these three clauses clearly disclose the intention
of the parties that a railway coach as a unit after its
completion, is contracted to the handed over by the
respondent to the Administrating. The contract, therefore,
that is entered in terms of the agreement is one of contract
of sale of good and not a works contract says Mr. Desai.
140
Although the submission on the first blush is
attractive and appears to be of some force, it will not bear
lose scrutiny. Perusal of clause 17 itself upon which great
reliance has been placed by Mr. Desai shows that “dates of
completion of the building work will be deemed to be the
respective dates on which the Chief Mechanical Engineer or
his authorised representative certifies each coach as having
been built to his satisfaction”. It is also apparent from
the contract that the contractor has to complete two coaches
each month after expiry of the first six months of the
contract. It is also clear that the con tractor has to get
payment by submitting running bill; on completion of the
coaches every month. In the above context when clause 17
refers to a fictional completion or the building work on the
date of certificate by the Chief Mechanical Engineer or his
authorised representative there is no requirement for a
further ritual of delivery or handing over to which
reference made in clauses 15 and. ‘ 23 respectively. The
work is undertaken in the Railway premises. people are
admitted on gate passes for building the railway coaches on
the under frames supplied by the Administration. Some
materials such as electrical goods. were supplied by the
Railway. Besides, there is cooperation of Railway’s labour
with the contractor’s labour in construction of the coach
the hand-rake arrangements in the Guard’s compartment are
also agreed to be done by the ‘Railway. Regular inspection
of the contractor’s work is carried out at all times and
instructions to rectify defects have to be carried out
immediately. Unless a close inspection of the work is
carried out from day to day, it may be difficult to rectify
defect t after the work progresses. All this would go to
show that the predominant element in the contract is the
work and labour aspect and supply of materials is only
accessory although the materials were definitely necessary
for execution of the work. There is yet another important
clause which throws a flood of light on this issue Clause 25
deals with the contractor’s insolvency or death. It is
agreed between the parties, as per clause 25, that if the
contractor dies, his legal representatives shall have no
interest whatsoever in this agreement save in respect of a
claim for the money due for the work already done under the
contract and for the return of the security deposit subject
to other provisions. This would also clearly show that the
contract is a works contract and unfinished work would
become the property of Railway and the legal representatives
will be entitled only to claim for the value of the work
done. There is no provision in the agreement in that event
for handing over of the unfinished railway coach by the
respondent or his legal representatives or assignees to the
Railway Administration. The Railway Administration
automatically becomes the owner of the unfinished property
which was lying in its premises. This is another reason why
no exaggerated importance can be assigned to the words
“delivery” and ” handed over” in clauses 15 and 23
respectively as urged by Mr. Desai.
This is therefore, not a contract where it can be said
that there is an agreement to supply a completed railway
coach which when produced will be the property of the
contractor. Along with those of the contractor’s materials
and labour of Railway are also required to be
141
!THIS PAGE IS NOT WELL SCANED
142
the value of the materials us conclusive although such
matters may be taken into consideration in determining
i the circumstance of a particular case whether the
contract is in substance one for work and labour or one
for the sale of the chattel”.
It can be treated as well-settled that there is no
standard formula by which one can distinguish a contracts of
sale from a contract for work and labour. There may be many
common features in both the contracts, some neutral in
particular context and yet certain clinching terms in a
given case may fortify a conclusion one way or the other. It
will depend upon the facts and circumstances of each case.
The question is not always easy and has for all time vexed
jurists all over.
In Commissioner of Commercial Taxes, Mysore v.
Hindustan Aeronautical Ltd.(1) a bench of five Judges of
this Court to which my learned brother was a party had to
deal with a works contract With regard to manufacture and
supply of railway coaches. This Court after consideration of
all the facts In that case and the salient features of the
contract came to the conclusion that it was a pure works
contract with Court further held that the case was in line
with the decision in State of Gujarat v. Kailash Engineering
Co.(2). Indeed Kailash Engineering’s case (supra) was relied
upon by the respondent before us. It was held in that case
that as the terms of the contract indicate that the
respondent was not to he the owner of the ready railway
coaches and that the property in those bodies vested in the
Railway even during the process of construction, the
transaction was clearly a works contract and did not involve
any sale.
Mr. Desai strenuously contends that clause (29) of the
contract in Kailash Engineering’s case (supra) distinguishes
that case from the case at hand Clause 29 was a specific
provision for certain contingencies in case of loss theft or
destruction of the materials or plant. This special
provision was to the effect that the liability of the
contractor was not to be diminished in any way
notwithstanding the fact that the materials and plant became
the property of the Railway as soon as they were brought to
the Railway premises. We however do not see much point in
this submission In that case since the plant and materials
were brought on the site when the contract were to be
constructed the ownership is said to have vested in the
Railway. In the present case also substantially the same
result follows. The agreement here shows that when the
contractor dies his legal representatives or assignees have
no interest in the contract which terminates and they will
be only paid for the value of the work done. This would mean
the property constructed upto that point was impliedly
agreed upon to be vested in the Railway as and when
materials were worked into the chassis. This is the
implication of the agreement and not merely on the theory of
accretion. At any rate the passing of property in this case
is ancillary to the primary contract for execution of the
work.
(1) (1972) 29 S. T. C. 438. (2) (1967) 19 S. T. C. 13
143
In the Slate of Madras v. Richardson & Cruddas Ltd(1)
this Court was dealing with a contract for fabrication and
installation of steel structure for sugar factory in the
State of Mysore. In the course of the judgment this Court
observed as follows:-
It had therefore to be established that the
consideration was received under a contract to sell
specific goods for a price and property in the goods
contracted to be sold passed to the society when the
goods were delivered in a pursuance of the contract. If
the contract was for completing the stipulated work and
for that purpose to use materials belonging to the
respondents in the performance or execution of the
contract as accessory to `work and labour’ the contract
must be regarded as a works contract and not a contract
for sale even in the property in the goods ultimately
passes as a result of the contract .
The Court further observed at page 252 as follows .
The contract being one for supplying for an
inclusive price a specially designed fabricated unit to
be assembled and installed by specially trained
technicians ill the premises of the customer it was not
a contract for sale of a unit or different parts of the
unit is specials good but a works contract .
In the Government of Andhra Pradesh. v. Guntur Tabaccos
Ltd.(2) this Court dealing with an identical issue observed
as follows at page 255:
The fact that in the execution of a contract for
work some materials are used and property in the goods
so used passes to the other party the contractor
undertaking to do the work will not necessarily be
deemed on that account to sell the materials .
Again at page 258:
Whether a contract for service or for execution of
work invokes a taxable sale of goods must be decided on
the facts and circumstances of the case. The burden in
such a case lies upon the taxing authorities to show
that there was a taxable sale and that burden is not
discharged by merely showing that property in goods
which belonged to the party per forming service or
executing the contract stands transferred to the other
party .
This Court in Commissioner of Sales Tax, M.P. v.
Purshottam Premji(3) dealt with the difference between a
contract of work or service and a contract for sale of goods
in the following passage:
The primary difference between a contract for work
or service and a contract for sale of goods in that in
the former
(1) (1968) 21 S. T. C. 215. (2) (1965) 16 S. T. C. 240.
(3) (1970) 26 S. T. C. 38.
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there is in the person performing work or rendering
service no property in the thing produced as a whole
notwithstanding that a part or even the whole of` the
material’ used by him may have been his property. In
the case of a contract for sale the thing produced as a
whole has individuals existence as the sole property of
the party who produced it at some time before delivery
and the property therein passes only under the contract
relating there to the other party for price. Mere
transfer of property in goods used in, the performance
of a contract is not sufficient; to constitute a sale
there must be an agreement express or implied relating
to the sale of goods and completion of the agreement by
passing of title in the very goods contract the to be
sold. Ultimately the true effect of an accertion made
pursuance to a contract has to be judged not by an
artificial rule that the accretion may he presumed to
have become by vitrue of affixing to a chattel part of
that chattel but from the intention of the parties to
the contract.
We are fortified by all the above decisions of this
Court in our conclusion in favour of the assessee.
We are therefore clearly of opinion that the contract
in the present case is one of works contract and the High
Court is not in answering the question in favour of the
assessee. The appeals therefore fail and are dismissed with
costs. One hearing fee for counsel.
P.B.R. Appeals dismissed.
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