JUDGMENT
Thanikkachalam, J.
1. The department is the petitioner herein. The assessee is a dealer of oil and vanaspathy. In the assessment year 1979-80, the State Trading Corporation of India has imported “palm oil” from foreign countries in ships. In order to get it transported to the various regions of India, the State Trading Corporation entered into an agreement with different parties. One such agreement was entered with the assessee herein. According to the agreement the assessee should procure tins with the capacity of 15.5 kgs. nett and fill up the tins with palm oil and supply the same to the customers as per the instructions by the State Trading Corporation. The company would be paid tinning charges including costs of the tins at the rate of Rs. 1,050 per metric tonne. The department considered that in so far as the tins are concerned, the assessee sold the tins to the State Trading Corporation and, therefore, the sale turnover of tins is liable to be taxed under the Tamil Nadu General Sales Tax Act, 1959 (hereinafter referred to as “the Act”). Accordingly the assessing officer taxed the sale turnover of the tins. Since the assessee did not disclose the sale turnover relating to tins, the assessing officer levied penalty of Rs. 2,12,122 under section 12(3) of the Act. On appeal, the Appellate Assistant Commissioner confirmed the order passed by the assessing officer. But in the matter of levying penalty the Appellate Assistant Commissioner held that no penalty is leviable under section 12(3) of the Act. Aggrieved by the order of the Appellate Assistant Commissioner, the assessee filed an appeal before the Appellate Tribunal questioning the legality and validity of the order passed by the Appellate Assistant Commissioner in sustaining the addition made by the assessing officer. Aggrieved by the order of the Appellate Assistant Commissioner, the department filed an enhancement petition before the Tribunal. The Tribunal followed the decision of this Court in the case of Deputy Commissioner (C. T.) v. Sri Ram Cotton Pressing Factory (P.) Limited [1977] 39 STC 277 and in the case of State of Tamil Nadu v. Venkateswara Roller Flour Mills and Metal Industries [1974] 33 STC 369, and came to the conclusion that the sale value of the tins would not be amenable to tax under the Act. Accordingly, the Tribunal dismissed the enhancement petition filed by the department with regard to the restoration of penalty.
2. Aggrieved by this order, the department is in revision before this Court. According to the learned Additional Government Pleader (Taxes) the Tribunal was not correct in holding that the sale value of the tins is not amenable to tax under the Act. According to the learned counsel the agreement between the parties is discernible and the sale value of the tins would be liable to be taxed under the Act. Learned Additional Government Pleader further submitted that the sale value was reimbursed by the State Trading Corporation, and it would amount to sale of tins by the assessee to the State Trading Corporation. Relying upon the decision reported in the case of Government of Andhra Pradesh v. Guntur Tobaccos Ltd. , the learned Additional Government Pleader (Taxes) submitted that the supply of materials used in the execution of the works is for a price in the present case. Therefore, the sale value of the tins is taxable under the Act. Therefore, according to the learned Additional Government Pleader (Taxes) the Tribunal was not correct in holding that no tax is leviable on the sale value of the tins. With regard to the enhancement petition, the learned Additional Government Pleader (Taxes) submitted that even though the Appellate Assistant Commissioner deleted the penalty in its entirely, the enhancement petition filed by the department is entertainable.
3. On the other hand the learned counsel appearing for the assessee while supporting the order passed by the Tribunal submitted that it is in accordance with the agreement entered into between the assessee and the State Trading Corporation, the assessee procured the tins and the sale value of the tins was borne by the State Trading Corporation. Learned counsel for the assessee, in order to support this contention, brought to our notice the sale bills issued for purchase of tins. The sale bills are standing in the name of State Trading Corporation wherein 4 per cent, tax was also paid on the sale turnover of the tins. Learned counsel appearing for the assessee further submitted that what was entered into between the State Trading Corporation and the assessee, was works contract and according to the said contract it is for the assessee to procure the tins and after filling the tins with oil, the assessee should transport the same to the customers of the State Trading Corporation. For all these purposes a consolidated sum of Rs. 1,050 per metric tonne was paid by the State Trading Corporation. Therefore, no separate charges were paid for the tins. There is no sale involved in the present case while the oil was filled in the tins procured by the assessee and transporting the same to the customers of the State Trading Corporation. According to the learned counsel, sine the contract entered into between the State Trading Corporation and the assessee is a works contract, there is no element of sale involved in it. It was, therefore, submitted that the Tribunal was correct in deleting the addition made by the authorities below in respect of the sale value of the tins.
4. We have heard the rival submissions. The fact remains that the State Trading Corporation entered into an agreement with the assessee. According to the said agreement the assessee should procure the tins and fill up the same with oil and transport the same to the customers of the State Trading Corporation For all these purposes the State Trading Corporation was paying a sum of Rs. 1,050 per metric tonne to the assessee. The department tried to tax against the estimated sale turnover of the alleged sale of tins. According to the assessee the contract entered into between the assessee and the State Trading Corporation is works contract and procuring the tins for the purpose of filling the oil is a part of the works entrusted with the assessee. Therefore, procuring the tins and supplying the tinned oil to the customers of the State Trading Corporation would not amount to sale of tins by the assessee to the State Trading Corporation. The fact also remains that a consolidated amount was paid for procuring the tins for filling the tins with oil and in transporting the same to the customers of the State Trading Corporation. In the case of Government of Andhra Pradesh v. Guntur Tobaccos Ltd. [1965] 16 STC 240 while considering the nature of works contract the Supreme Court has held as under :
“….. in business transactions the works contracts are frequently not recorded in writing setting out all the covenants and conditions thereof, and the terms and incidents of the contracts have to be gathered from the evidence and attendant circumstances. The question in each case is one about the true agreement between the parties and the terms of the agreement must be deduced from a review of all the attendant circumstances. But from the mere passing of title to goods either as integral part of or independent of goods it cannot be inferred that the goods were agreed to be sold, and the price is liable to sales tax.”
Similar question came up for consideration before the Gujarat High Court in the case of A. A. Jariwala and Bros. v. State of Gujarat [1965] 16 STC 942. According to the facts arising from this case “the customers sent saris to the applicants for getting embroidery work on the saris with instructions regarding the designs required on those saris. The assessee gave the jari materials and the saris to the workers doing the job work in their own houses and gave them piece rates according to the work done by them. After completion of the embroidery work on the saris, the applicants returned the saris to the customers also with a consolidated bill for the entire work done by them. The question was whether the contract between the applicants and their customers was a works contract or was a composite agreement, one for the sale of the jari materials and another for doing work”. On these facts, it has held that :
“the contract was one and indivisible and was nor separable into two contracts, one for service and the other for the sale of the jari materials. The contract essentially was one of work and labour and the supply of jari materials in the execution of the embroidery work was merely ancillary.”
In the case of State of Tamil Nadu v. Venkateswara Roller Flour Mills and Metal Industries [1974] 33 STC 369, this Court while considering the nature of the works contract held :
“that the mere passing of title to goods in the course of execution of a works contract will not make the transaction a taxable sale unless there is an implied agreement to sell the goods.”
5. This Court had an occasion to consider the nature of the works contract in the case of Deputy Commissioner (C. T.) v. Sri Ram Cotton Pressing Factory (P.) Limited [1977] 39 STC 277. According to the facts arising in that case, the assessee engaged in the business of pressing cotton waste brought by their customers purchased, in the course of their business, hessian cloth and hoop iron and utilised the same in the packing of cotton waste pressed by them. The assessing authority came to the conclusion that the assessee had sold hessian cloth and hoop iron used in packing the cotton waste to the respective customers and assessed them to sales tax on an amount made up of the cost price of the articles plus ten per cent. profit. While considering this aspect, this Court has held as under :
“that the contract, which the assessee entered into with their customers, was principally a works contract and as incidental to the execution of the works contract, the assessee had used hoop iron and hessian cloth as packing materials. There was no express contract for the sale of the packing materials and it was for the department to show that there was an implied contract for the sale of the packing materials. As the department failed to establish the existence of an implied contract, the Tribunal was right in holding that the assessee was not liable to sales tax on the value of the packing material.”
Finally a similar question with regard to the interpretation of works contract, came up for consideration before this Court in the case of S. Chandrasekaran v. State of Tamil Nadu [1990] 78 STC 147 wherein this Court has elucidated the meaning of the word “works contract” in the following manner :
“allowing the appeal, that there was no tangible material before the Assistant Commercial Tax Officer to arrive at the conclusion that 65 per cent. of the value of the work represented the value of tiles. This was a guess. The nature of the contract could not depend on the mode of payment provided in the contract, and the fact that 65 per cent. of the value of the work was to be paid on delivery of tiles was not conclusive. Therefore the conclusion that the contract was divisible was groundless. A close scrutiny of the contract established that it was one for laying of mosaic tiles at a particular rate for a particular area and not for mere supply of tiles. The final bill given by the appellant made it clear that the contract was one and indivisible. In substance, the contract was an indivisible works contract, not a contract for sale of goods. The fact that the customer had agreed to supply water, electricity, support labour, etc. could not detract from the nature of the work, if otherwise it was an indivisible ‘works contract’.”
Therefore, ultimately, whether a contract is a works contract or a composite agreement, depends upon the fact arising in each case. According to the facts arising in the present case as per the agreement between the parties, the State Trading Corporation directed the assessee to procure the tins for the purpose of filling them with oil and the State Trading Corporation undertook to pay the tinning charges including the costs of tins at the rate of Rs. 1,050 per metric tonne. It remains to be seen that the assessee is not a dealer in tins when the tins were purchased; they were purchased in accordance with the requests made by the State Trading Corporation. There was no separate payment for the tins to the assessee so as to conclude that what has happened between the assessee and the State Trading Corporation is sale. Learned counsel appearing for the assessee also drew our attention to the bills raised for the purpose of purchasing the tins. The bills are in the name of State Trading Corporation and 4 per cent. tax was also paid by the State Trading Corporation with regard to the sale turnover of tins. Therefore, the overwhelming records world go to show that there is no instance of sale between the assessee and the State Trading Corporation with regard to the tins. Inasmuch as the bills produced would go to show that the State Trading Corporation itself has purchased the tins from the sellers and in the absence of any evidence to show that the assessee paid the purchase money for the bill we have to conclude that the State Trading Corporation is the purchase of the tins as per the materials available on record. Thus considering the facts arising in this case in the light of the decisions cited supra, we hold that there is no infirmity in the order passed by the Tribunal in coming to the conclusion that no tax is leviable on the sale value of the tins. Since there was no tax leviable on the sale value of tins, there is no necessity to consider the grounds raised by the department in the matter of levying penalty under section 12(3) of the Act. Accordingly, the petition is dismissed. No costs.
6. Petition dismissed.