{"id":186652,"date":"1976-04-26T00:00:00","date_gmt":"1976-04-25T18:30:00","guid":{"rendered":"https:\/\/www.legalindia.com\/judgments\/state-of-gujarat-commissioner-of-vs-ms-variety-body-builders-on-26-april-1976"},"modified":"2017-02-12T23:04:35","modified_gmt":"2017-02-12T17:34:35","slug":"state-of-gujarat-commissioner-of-vs-ms-variety-body-builders-on-26-april-1976","status":"publish","type":"post","link":"https:\/\/www.legalindia.com\/judgments\/state-of-gujarat-commissioner-of-vs-ms-variety-body-builders-on-26-april-1976","title":{"rendered":"State Of Gujarat (Commissioner Of … vs M\/S. Variety Body Builders on 26 April, 1976"},"content":{"rendered":"
Supreme Court of India<\/div>\n
State Of Gujarat (Commissioner Of … vs M\/S. Variety Body Builders on 26 April, 1976<\/div>\n
Equivalent citations: 1976 AIR 2108, \t\t 1976 SCR 131<\/div>\n
Author: P Goswami<\/div>\n
Bench: Goswami, P.K.<\/div>\n
           PETITIONER:\nSTATE OF GUJARAT (COMMISSIONER OF SALES TAX, AHMEDABAD)\n\n\tVs.\n\nRESPONDENT:\nM\/S. VARIETY BODY BUILDERS\n\nDATE OF JUDGMENT26\/04\/1976\n\nBENCH:\nGOSWAMI, P.K.\nBENCH:\nGOSWAMI, P.K.\nKHANNA, HANS RAJ\n\nCITATION:\n 1976 AIR 2108\t\t  1976 SCR  131\n 1976 SCC  (3) 500\n CITATOR INFO :\n RF\t    1977 SC 197\t (6)\n D\t    1977 SC1537\t (36)\n RF\t    1984 SC 744\t (25)\n\n\nACT:\n     Bombay sales  Tax Act-Contracts  for sale of goods and'\nwork contracts-Tests for deciding works contracts.\n\n\n\nHEADNOTE:\n     The respondents  entered into  three written  contracts\nwith the  Railways for\tthe construction  of railway coaches\naccording to  the design  provided by  them, on\t the  under-\nframes supplied by the Railways. The contractor was required\nto  make   security  deposit  for  the\tdue  fulfilment\t and\ncompletion of the contract which in the event of breach, was\nliable to  be forfeited\t and confiscated.  Supply  including\nmanufacture, assembly,\tfitting, fixing and finishing of all\nconstructional materials  and fittings\tincluding timber was\nby the\tcontractor. The\t Railways were\trequired  to  supply\nelectric fitting;  Railway staff  would work  in association\nwith the  contractor's staff  for installation of electrical\nequipment; Railway site was provided for the work and for no\nother purpose.\tThe Railways  had the right of inspection at\nall times  and of  maintenance of  control over\t standard of\nworkmanship requiring  rectification of work and replacement\nof materials when ordered.\n     The Sales\tTax officer,  holding that  the transactions\nwere sales,  charged them to tax. The respondents' appeal to\nthe Assistant  Commissioner of Sales Tax. as also a revision\napplication before  the Deputy Commissioner of Sales Tax and\nthe Tribunal were unsuccessful. On reference, the High Court\nheld that the contracts were works contracts.\n     Dismissing the appeals,\n^\n     HELD: (1)\tFrom the  totality of the material terms and\nconditions in  the agreement it is not possible to hold that\nthe parties  intended that  the contractor  transferred\t the\nproperty in  the railway  coaches to  the Railways after its\ncompletion. The\t essence of  the contract  or the reality of\nthe transaction as a whole indicates that the contract was a\ncontract for work and labour. [139 F]\n     (2) The  predominant element  in the  contract was\t the\nwork and  labour aspect\t and supply  of materials  was\tonly\naccessory although  the materials  were definitely necessary\nfor the\t execution  of\tthe  work.  The\t term  that  if\t the\ncontractor died,  his legal  representatives would  have  no\ninterest whatsoever  in the  agreement save  in respect of a\nclaim for  the money  due and for the return of the security\ndeposit, clearly  showed  that\tthe  contract  was  a  works\ncontract. The  unfinished work\tbecame the  property of\t the\nRailways and the legal representatives were entitled only to\nclaim for  the value  of the  work done. In the event of the\ndeath of  the contractor.  there was  no provision  for\t the\nhanding\t over\tof  the\t unfinished  coaches  by  the  legal\nrepresentatives to  the\t Railways.  In\tsuch  an  event\t the\nRailways automatically\tbecause the  owner of the unfinished\nproperty. [140E-G]\n     T. V.  Sundaram Iyengar  & Sons  v. The State of Madras<\/a>\n(1975) 35  STC 24  and Patnaik\tand Company  v. The State of\nOrissa,<\/a> (1965) 16 STC 364, distinguished .\n     Commissioner of  Commercial Taxes,\t Mysore v. Hindustan\nAeronautics Ltd.<\/a>  (1972) 29  STC 438;  State of\t Gujarat  v.\nKailash Engineering Co.<\/a> (1967) 19 STC 13; State of Madras V.\nRichardson &  Cruddas Ltd., (1968) 21 STC 245: Government of\nAndhra Pradesh: v. Guntur Tobaccos Ltd., (1965) 16 240 and\n132\nCommissioner of\t Sale Tax, M.P. v. Purshottam Premji,<\/a> (1970)\n16 STC 38, followed.\n\n\n\nJUDGMENT:\n<\/pre>\n
     CIVIL APPELLATE  JURISDICTION :  Civil Appeal Nos. 1492
\nand 1493 of 971.\n<\/p>\n
     Appeals by\t Special Leave\tfrom the  judgment and order
\ndated the  7th and  9th\t November, 1 970 of the Gujarat High
\nCourt at Ahmedabad in Sales Tax Reference No. 5; of 1969
\n     S. T. Desai and M. N. Shroff; for the Appellants.
\n     V. S.  Desai, Vimal  Dave, Ram Phal, Ganpat Rai, (Mrs.)
\nSheil Sethi and (Miss) Kailash Mehta: for Respondent.\n<\/p>\n
     The Judgment of the Court was delivered by
\n     GOSWAMI, J.-This judgment will govern both the appeals.
\n     These two appeals by special leave are directed against
\nthe common  judgment of the Gujarat High Court ill Sales Tax
\nReference No. 5 of 3969 relating to two periods, namely, (1)
\nfrom 24th  October 1955 to 31st March, 1956 and (2) from 1st
\nApril, 1956 to 31st March, 1 1957.\n<\/p>\n
     The Tribunal had earlier delivered a common judgment in
\ntwo revision  applications No.\t121 and\t to. 12′ of 1961 and
\nmade a\tcomposite reference  to the  High  Court  under\t the
\nBombay Sales  ‘Tax Act\tstating the  following question\t for
\nanswer
\n\t  “Whether on  the facts and in the circumstances of
\n     the  case\tthe  three  contracts  for  construction  of
\n     coaches on\t the under-frames  supplied by\tthe  Railway
\n     Administration, the  contracts containing similar terms
\n     were  contracts   for  sale  of  goods  and  not  works
\n     contracts?” the  facts appearing  from the statement of
\n     case are as fellows :-\n<\/p>\n
     The facts\tappearing from\tthe statement of case are as
\nfollows:-\n<\/p>\n
     The respondent,  M\/s. Variety  Body  Builders,  Baroda,
\nentered\t into  three  contracts\t with  the  Western  Railway
\nAdministration for  construction of  railway coaches  on the
\nunder-frames supplied  by the  said railway  Administration.
\nThe three  contract were  reduced into writing and contained
\nthe terms  and conditions under which the con tracts were to
\nbe performed.  The first  agreement dated September 17, 1954
\nwas  for   construction\t of  25\t N.G.  coaches.\t The  second
\nagreement  dated   July\t 11,   1955,  was   in\trespect\t  of
\nconstruction of\t 6 T.L.R. coaches. The third agreement dated
\nJanuary 14,  1956, was\tfor construction of 25 N.G. coaches.
\nThe Sales Tax officer held that the transactions relating to
\nthe construction  o. the  said coaches\twere transactions of
\nsales of  these coaches by the respondent. On that basis the
\nrespondent was\tassessed at  Rs. 2,72,803\/8\/-  for the first
\nperiod and  at Rs.  3,82,820\/- for  the second\tperiod.\t The
\nrespondent’s appeals  to the Assistant Commissioner of Sales
\nTax were  unsuccessful. The  revision  applications  of\t the
\nrespondent before  the Deputy  Commissioner of Sales Tax and
\nlater before the Tribunal met with the
\n133<\/span>
\nsame fate.  The Tribunal,  however, referred the question of
\nlaw. as set out earlier to the High Court and the High Court
\nanswered the  same in  favour of  the respondent  and  hence
\nthese appeals by special leave.\n<\/p>\n
     The only  question with which we are concerned in these
\nappeals\t is  whether  the  contracts  entered  into  by\t the
\nrespondent with\t the Railway Administration for construction
\nof railway  coaches are contracts for sale of goods or works
\ncontracts.\n<\/p>\n
     Since the three contracts are substantially similar the
\nHigh Court  and the  authorities  below\t took  note  of\t the
\nrecitals of  the third\tcontract dated January 14, 1965, and
\nwe will also take the same into consideration.\n<\/p>\n
     Mr. S.  T. Desai  appearing on  behalf of the appellant
\nand Mr.\t Ram Phal appearing on behalf of the respondent took
\nus through  all the  clauses of\t the agreement\tand  pressed
\ntheir rival  viewpoints. Mr.  Desai submits  that  from\t the
\ntotality of  the conditions  laid down\tin the agreement the
\ncontract is  one for sale, being transfer of property in the
\nrailway bogies\tas a  unit  of\tgoods  and,  therefore,\t the
\ntransaction is\tliable to  Sales Tax.  Mr. Ram\tPhal on\t the
\nother hand,  relying on the same terms and conditions in the
\ncontract, submits  that\t it  is\t a  pure  and  simple  works
\ncontract and not a contract for sale of goods.\n<\/p>\n
     It\t is  well-settled  that\t when  there  is  a  written
\ncontract it  will be  necessary for  the Court\tto find\t out
\ntherefrom  the\t intention  of\tthe  parties  executing\t the
\nparticular contract.  That intention  has  to  be  primarily
\ngathered from the terms and conditions which are agreed Upon
\nby the\tparties. We  will, therefore,  immediately turn\t our
\nattention to the agreement in question.\n<\/p>\n
     The preamble  of the  agreement shows  that it  is\t all
\nagreement entered  into between\t the Railway  Administration
\nand the respondent described as “the contractor”.\n<\/p>\n
     The first\tclause describes  the “nature  of work ‘. It
\nstates\t“the  contractor  hereby  agrees  to  undertake\t the
\nbuilding of 25 Nos. Narrow Gauge Third Class Bogie Coaches .
\non I.R.S. under-frames to be provided by the Western Railway
\nto the\tdesign indicated  at the  rate of  Rs. 19141\/- only.
\nthe said  work of building bodies will be carried out by the
\ncontractor in  the area\t of premises  of the Western Railway
\nWorkshop at Pratapnagar, Baroda or at such other location as
\nmay be\tmutually agreed upon”. It also appears in the second
\npart of\t clause (1)  that each\temployee working  under\t the
\ncontractor “for\t this work”  will have a gate pass issued in
\nhis favour on a deposit of Rs. 5\/- for each gate pass. It is
\nalso stated  in the second part of clause (1) that “all gate
\npasses issued to the contractor arc returnable within a week
\nof termination of the contract”.\n<\/p>\n
     Clause (3)\t provides for  security deposit “for the due
\nfulfilment and\tcompletion of  this  contract”.\t Clause\t (3)
\nfurther says  that the\tsecurity deposit will be retained by
\nthe  Administration   “for  the\t  due  performance   of\t and
\nobservance of the terms and conditions of this contract”\n<\/p>\n
134<\/span><\/p>\n
and the\t same is  liable to  forfeiture “in the event of any
\nbreach on  the part  of the  contractor\t of  the  terms\t and
\ncondition of this contract”.\n<\/p>\n
     Clause (4)\t provides for  deduction of 10 per cent from
\neach progressive  bill submitted  by the  contractor and the
\nsecurity deposit  shall be  refunded to the contractor “only
\non successful completion or termination of this contract”.\n<\/p>\n
     Clause (9)\t provides that\tconstructional material\t and
\nfittings must  be supplied by the contractor which should he
\nordinarily as  per the Railway’s standard. “The provision of
\nthe hand-brake\tarrangements in\t the Guards compartment will
\nbe done by the Railway”.\n<\/p>\n
     Clause (11)  says that  the contractor  is required  to
\nsupply carpentry  labour for equipping coaches with electric
\nlights,\t fans\tswitches  and  regulators.  The\t appropriate
\nRailway staff will work in association with the contractor’s
\nstaff  to   an\textent\trequired  for  the  installation  of
\nelectrical equipment  and all  electrical fittings  will  be
\nsupplied by the Railway
\n     Clause (13)  provides for removal of rubbish, debris or
\ntemporary  structure   at  contractor’s\t  own  cost  on\t the
\nexpiration  of\t the  contract\t in  the  event\t of  earlier
\ntermination of the contract.\n<\/p>\n
     Clause ( 14) says that the contractor shall provide all
\nessential  equipment,\ttools  and  plant  for\tsatisfactory
\nexecution of the work. By clause
\n     By clause (15) “The contractor is required to deliver a
\nminimum number\tof two\tcoaches per  month starting from the
\nexpiry\tof   six  months  from\tthe  date  of  signing\tthis
\nagreement”.\n<\/p>\n
     Clause (16)  says that  “in the event of the contractor
\nfailing to carry out and complete the work within the period
\nstipulated as herein before provided the contractor shall be
\nliable to  pay to  the Administration  by way of ascertained
\nand liquidated\tdamages a sum equivalent one per cent of the
\nvalue of  the work  arrears for each and every month or part
\nof a  month by which the contractor shall be in default upto
\na maximum  of 20%  of the  value of  the  contract  but\t the
\ncontractor shall  not by reason of the recovery by any means
\nby the\tAdministration of  such damages be relieved from his
\nother obligations  and liabilities  under the  contract. The
\nrecoveries may, be made from the security deposit or running
\nbills or any sums due to the contractor”\n<\/p>\n
\t  Clause (17) may be set out:\n<\/p><\/blockquote>\n
\t  “The contractor  shall be responsible for the safe
\n     custody of\t carriages under  construction as well as of
\n     the material  supplied by\tthe Administration  for\t the
\n     purpose. till  the material  or the carriages are taken
\n     over by  the Administration. Dates of completion of the
\n     building work will be deemed to be the respective dates
\n     on\t which\t the  Chief   Mechanical  Engineer   or\t his
\n     authorised\t representative\t  certifies  each  coach  as
\n     having been built to his satisfaction”<\/p><\/blockquote>\n
135<\/span><\/p>\n
     Clause (18)  provides that\t the Railway authorities are
\nfree. to inspect the work. “The Chief Mechanical Engineer or
\nhis authorised\trepresentative will  be the  sole  judge  to
\ndetermine whether  the standard\t of workmanship is according
\nto the Railway`s requirement and . whether any part or parts
\nof  the\t  carriage  require   replacement  due\t to  bad  or
\nindifferent workmanship.”\n<\/p>\n
     Clause (19)  provides that\t “the contractor  shall\t not
\nunder any circumstances sub-let this contract either in part
\nor in  full without  the previous  consent in writing of the
\nChief Mechanical Engineer….”\n<\/p>\n
     Clause (20) provides for termination of the contract by
\ngiving one month’s notice to the contractor “in the event of
\nthe contractor\tfailing to  execute the\t contractual  duties
\nwith diligence, competence and expedition”.\n<\/p>\n
     Clause (21)  provides for\tthe duration of the contract
\nwhich in  the normal  course be\t in force for a period of 16
\nmonths from  the date  of signing of the same. There is also
\nprovision therein  for allowing\t such additional time as the
\nAdministration\tmay   consider\tto   be\t justified   by\t the
\ncircumstances of the case.\n<\/p>\n
     Clause (22)  provides for\tcontractor’s  liability\t for
\ndamages in  the event  of failure  to execute  the work with
\ndiligence and  expedition or  in complying  with any  orders
\ngiven by  the Chief  Mechanical Engineer  or his  authorised
\nrepresentative\t    from      time\tto\ttime.\n<\/p>\n
     Clause (23)  provides that “the contractor will present
\nbill through  District Mechanical  Engineer, Partapnagar for
\npayment on  the basis  of certified  completion in  terms of
\ncoaches completed and handed over to him”.\n<\/p>\n
     Clause (25)  states that “if during, the continuance of
\nthis agreement\tthe contractor\tshall die  or be adjudicated
\ninsolvent or  if` the contractor being a company shall enter
\ninto liquidation  whether voluntary  or compulsory….\tthis
\nagreement shall absolutely cease and determine and the legal
\nrepresentative\tof   the  contractor   or\/his  assignee\t  in
\ninsolvency or  (in the\tcase of\t a company)  the liquidators
\nshall have no interest whatsoever under this agreement other
\nthan in\t respect of  a claim  for the money due for the work
\ndone under  this contract and for the return of the security
\ndeposit subject to the provisions herein contained
\n     Clause (30)  makes provision  for\tfair  wages  to\t the
\nlabourers engaged by the contractor.\n<\/p>\n
     Clause (31)  says that  the contractor  shall  have  to
\nabide by safety rules.\n<\/p>\n
     Clause (32)  provides that\t the  contractor  shall\t not
\nemploy children under l:`j years of age.\n<\/p>\n
     Clause (33)  says that the contractor shall comply with
\nthe provisions\tof the\tPayment of  Wages Act  and the rules
\nmade thereunder.\n<\/p>\n
136<\/span><\/p>\n
     Clause (34)  provides that\t “the contractor shall pay a
\nnominal rent of Re. 1\/- per mensem for the area which may be
\nallotted to him i-or the purposes of building the coaches”.\n<\/p>\n
     Clause (35)  provides for water and conservancy charges
\nto be paid by the contractor
\n     Clause (36) provides for supply of electrical energy to
\nthe contractor on payment.\n<\/p>\n
     Clause (38)  says that  certain conditions\t of  ‘Tender
\nshall be  deemed to. be incorporated in the agreement. These
\ntenders are, however. not before us.\n<\/p>\n
     Before we\tproceed further we may. Observe that for the
\nmeaning of`  the expression  “sale of goods” we will have to
\nderive assistance  for the  legal connotation of those words
\nfrom the  provisions of\t the Sale of Goods Act? 1930. As has
\nbeen held by a Constitution Bench of this Court in the State
\nof Madras  v Gannon Dunkerly & Co. (Madras Ltd’) “that, both
\nunder the common law and the statute law relating to sale of
\ngoods in  England and  in India, to constitute a transection
\nof sale\t there should  be an  agreement, express or implied,
\nrelating to  goods to  be completed  by passing\t of title in
\nthose goods.  It is of the essence of this concept that both
\nthe agreement and the sale should relate to the same subject
\nmatter on  the true  interpretation. Of the expression ‘sale
\nof Goods’ there must be an agreement between the parties for
\nthe sale  of the  very goods  in which\teventually  property
\npasses”.\n<\/p>\n
     Bearing in\t mind the above legal concept of the sale of
\ngoods we  will have  to consider  whether the  terms of\t the
\ncontract, which we have set out earlier, can be construed in
\nfavour of  a contract  for sale\t of the\t railway Coach which
\nwere constructed by the respondent.\n<\/p>\n
     Mr.Desai  is  right  when\the  submits  that  the\tword
\ncontractor appearing.”\tin the\tpreamble is  not decisive on
\nthe question.  As we have stated earlier the entire document
\nwith all  the relevant\tand material  clauses throwing light
\nupon the  real intention of The parties and the\t real nature
\nof the\ttransaction must  be given due weight in coming to a
\nconclusion one way or the other.\n<\/p>\n
     The  following   material\tfeatures  in  the  agreement
\nimmediately draw  our attention so far as may be relevant in
\nconsidering whether  the contract is one of sale or contract
\nof work and labour:\n<\/p>\n
\t  (i)  Undertaking  by\t the  Contractor   work\t  of
\n\t       building bodies\ton under-frames supplied. by
\n\t       Railway, according  to design  provided by  a
\n\t       Railway (Cl. 1a).\n<\/p><\/blockquote>\n
\t  (2)  Security\t deposit   by  contractor   for\t due
\n\t       fulfilment and  completion  of  the  contract
\n\t       (Clause 3).\n<\/p><\/blockquote>\n
\t  (3)  Confiscation  or\t  forfeiture   of   security
\n\t       deposit in  the event  of any  breach by\t the
\n\t       contractor of  terms and\t conditions  of\t the
\n\t       contract (Clause 3).\n<\/p><\/blockquote>\n
     (1) 9 S.T.C. 353.\n<\/p><\/blockquote>\n
137<\/span><\/p>\n
\t  (4)  Deduction of  10% from  each progressive bill
\n\t       of  contractor  to  cover  any  likely  loss,
\n\t       damage etc. (Clause 4) .\n<\/p><\/blockquote>\n
\t  (5)  Import\tlicence\t   and\t foreign    exchange
\n\t       arrangements by contractor (Clause 6).
\n\t  (6)  Supply,\tincluding   manufacture,   assembly,
\n\t       fitting,\t fixing\t  and  finishing,   of\t all
\n\t       constructional\tmaterials    and    fittings
\n\t       including timber\t by the\t contractor  (Clause\n<\/p><\/blockquote>\n
\t       9).\n<\/p><\/blockquote>\n
\t  (7)  Provision of  hand-brake arrangements  in the
\n\t       Guard’s compartment by Railway (Clause 9).
\n\t  (8)  Supply of electrical fittings by Railway (Cl.\n<\/p><\/blockquote>\n
\t       11).\n<\/p><\/blockquote>\n
\t  (9)  Railway staff  working  in  association\twith
\n\t       contractor’s  staff   for   installation\t  of
\n\t       electrical equipment. (Clause 11) .
\n\t  (10) Use of Railway site provided for the work and
\n\t       for no other purpose. (Clause 12).
\n\t  (11) Removal\tof   rubbish,  debris  or  temporary
\n\t       structure at  contractor’s own cost. (Clause-\n<\/p><\/blockquote>\n
\t       13).\n<\/p><\/blockquote>\n
\t  (12) Earlier\t termination\tof   contract\talso
\n\t       envisaged. (Clause 13) .\n<\/p><\/blockquote>\n
\t  (13) Essential  equipment   to  be   provided\t  by
\n\t       contractor.  for\t  execution  of\t  the  work.
\n\t       (Clause 14).\n<\/p><\/blockquote>\n
\t  (14) At least\t two coaches  to  be  delivered\t per
\n\t       month after  expiry of  six months  from\t the
\n\t       signing of the con tract. (Clause. 15) .
\n\t  (15) Contractor’s  liability\t to  pay  liquidated
\n\t       damages in  the event of failure to carry out
\n\t       and  complete   the  work  within  stipulated
\n\t       period. (Clause 16).\n<\/p><\/blockquote>\n
\t  (16) Provision for running bills. (Clause 16).
\n\t  (17) Responsibility of contractor for safe custody
\n\t       of carriages under construction as well as of
\n\t       the materials  supplied by  Railway till they
\n\t       are taken over by Rail way.  (Clause 17) .
\n\t  (18) Date of\tcompletion of  binding work  on\t the
\n\t       date   of    certification    by\t   Railway’s
\n\t       representative to  his satisfaction.  (Clause\n<\/p><\/blockquote>\n
\t       17).\n<\/p><\/blockquote>\n
\t  (19) Right of\t inspection of\tthe work  by Railway
\n\t       at all  times and  of maintenance  of control
\n\t       over  standard\tof   workmanship   requiring
\n\t       rectification of\t work and  re  placement  of
\n\t       materials when ordered. (Clause 18).
\n\t  (20) No subletting  of contract  wholly or in part
\n\t       without the previous written consent of Chief
\n\t       Mechanical Engineer. (Clause 19).\n<\/p><\/blockquote>\n
138<\/span><\/p>\n
\t  (21) Authority  to   terminate  contract   by\t one
\n\t       month’s notice in the event of the contractor
\n\t       s  lack;\t  of   diligence,   competence\t and
\n\t       expedition in  executing contractual  duties.
\n\t       (Clause 20).\n<\/p><\/blockquote>\n
\t  (22) Any losses incurred by Railway and occasioned
\n\t       through failure of contractor to company with
\n\t       contractual  obligations\t will  be,  deducted
\n\t       from security deposit. (Clause 20).
\n\t  (23) Contract to  be in force for 16 months unless
\n\t       extended\t on  reasonable\t ground\t subject  to
\n\t       waiver of  loss or damage by Railway. (Clause\n<\/p><\/blockquote>\n
\t       21).\n<\/p><\/blockquote>\n
\t  (24) Contractor’s liability for damage for failure
\n\t       to  execute   the  work\twith  diligence\t and
\n\t       expedition  or\tto  comply  with  orders  of
\n\t       Railway Administration. (Clause\t  22).
\n\t  (25) Bills to\t be submitted  by contractor  on the
\n\t       basis of\t certified completion  in  terms  of
\n\t       coaches completed.  and handed  over  to\t the
\n\t       District Mechanical Engineer. (Clause 23 ) .<\/p><\/blockquote>\n
\n\t  (26) Contractor,   his    heirs,   executors\t  or\n\t       administrators\t to\tindemnify    Railway\n<\/pre>\n
\t       Administration, from  and against  all claims
\n\t       including   claims    under   the   Workmen’s
\n\t       Compensation  Act,   Payment  of\t Wages\tAct,
\n\t       Factory Act, etc. (Clause 24).\n<\/p><\/blockquote>\n
\t  (27) In case\tof contractor’s\t insolvency of death
\n\t       agreement   shall    absolutely\t cease\t and
\n\t       determine and  the legal\t representatives  of
\n\t       the contractor  or the liquidators shall have
\n\t       no interest  whatsoever under  the  agreement
\n\t       other then  in respect  of a  claim  for\t the
\n\t       money due  for the   for\t the work done under
\n\t       the  contract  and  for\tthe  return  of\t the
\n\t       security deposit\t subject to  the pro visions
\n\t       of the agreement (Clause 25)
\n\t  (28) Arbitration  clause   in\t the  event  of\t any
\n\t       dispute\tin  connection\twith  the  contract.
\n\t       (Clause 28).\n<\/p><\/blockquote>\n
\t  (29) Contractor to  pay fair\twages  to  labourers
\n\t       employed. (Clause 30).\n<\/p><\/blockquote>\n
\t  (30) Contractor  to abide by safety rules. (Clause\n<\/p><\/blockquote>\n
\t       31).\n<\/p><\/blockquote>\n
\t  (31) No employment  of children  under 15 years by
\n\t       con tractor. (Clause 32).\n<\/p><\/blockquote>\n
\t  (32) Responsibility of contractor under Payment of
\n\t       Wages Act. (Clause 33).\n<\/p><\/blockquote>\n
\t  (33) Nominal\trent   of  Re.\t1\/-  per  month\t for
\n\t       occupation  of\tthe  Railway  area  for\t the
\n\t       purpose of building the coaches. (Clause 34).\n<\/p><\/blockquote>\n
139<\/span><\/p>\n
\t  (34) Contractor to pay to the Railway conservancy-\n<\/p><\/blockquote>\n
\t       charges and  for supply of electrical energy.
\n\t       (Clauses 35 and 36) .<\/p><\/blockquote>\n
     Reading the  agreement as\ta whole\t and bearing in mind
\nthe above  features, is it possible to conclude that what is
\ncontracted is  to sell\tthe railway coach constructed by the
\ncontractor to  the Railway  ? In  . that  event the  railway
\ncoach when  constructed by  the contractor  to the  Railway?
\nIn that\t event the railway coach when constructed must be as
\na unit the property of the contractor.\tBut has the assessee
\nalone contributed  to the  result  ?  There  were  materials
\nsupplied by  railway. There  was labour supplied by Railway.
\nIt is  different from the case of a bus-body fitted into the
\nchassis with  all materials  supplied by  the contractor and
\nall skill and labour contributed by the contractor.\n<\/p>\n
     A contracts  to sell  a certain  article to must be the
\nowner\tof the\tarticle and  B must  be at the receiving end
\nhaving no  interest in\tthe article prior to passing of. the
\nproperty therein.  Is the  contractor owner  of the  railway
\ncoach when  It was  completed? the  answer must\t be  in\t the
\nnegative.   Apart from\tthe fact that the under frame is not
\nof the\tcontractor (which  may in  a given case be a neutral
\nfactor) not  all his  materials nor all his labour and skill
\ncontributed to\tthe coach.   The  railway supplied  men\t and
\nmaterials  although  the  substantial  portion\tis  for\t the
\ncontractor.   This goes\t to bring  out the  intention of the
\nparties in they were intent upon performance of the work the
\nmanner of the work  the quality of the materials used in the
\nwork and  upon completion  of the work in the most efficient
\nway  resulting\t ultimately  in\t a  completed  coach.\t The
\nintention of  the parties  at the  time of entering upon the
\ncontract was  not to transfer any completed railway coach by
\nthe contractor\tto the\tRailway.  The end-product, being the
\nrailway coach,\tis the\tresult of work, labour and materials
\nof the\tcontractor as  well as of the railway as also of the
\nlatter’s constant supervision and control.\n<\/p>\n
     From the totality of the material terms, and conditions
\nin the\tagreement set  out above, it is not possible to hold
\nthat the  parties intend  that the  contractor transfers the
\nproperty in  the railway.  coach to  the Railway  after\t its
\ncompletion. The\t essence or  the contract  or the reality of
\nthe transaction as a whole indicates that. the contract is a
\ncontractor work and labour.\n<\/p>\n
     Mr. Desai\tsubmits\t that  clauses\t15  ,17\t and  23  in
\nparticular make\t it absolutely\tclear that the property in a
\nunit   in the shape of a completed railway coach passes only
\non handing  over of  the same  to  the\tDistrict  Mechanical
\nEngineer after\tthe same has been complete and the specified
\nauthority certifies  the coach\tas having  been built to his
\nsatisfaction.\tHe particularly\t draws our  attention to the
\nword” deliver”\tin clause  15 and  the words” taken over” in
\nclause 17  and ”  handed over’\tin clause 23 .\tAccording to
\nMr. Desai these three clauses clearly disclose the intention
\nof the\tparties that  a railway\t coach as  a unit  after its
\ncompletion,  is\t  contracted  to  the  handed  over  by\t the
\nrespondent to  the Administrating.  The contract, therefore,
\nthat is entered in terms of the agreement is one of contract
\nof sale of good and not a works contract says Mr. Desai.\n<\/p>\n
140<\/span><\/p>\n
     Although  the   submission\t on   the  first   blush  is
\nattractive and appears to be of some force, it will not bear
\nlose scrutiny.\tPerusal of clause 17 itself upon which great
\nreliance has  been placed  by Mr. Desai shows that “dates of
\ncompletion of  the building  work will\tbe deemed  to be the
\nrespective dates  on which  the Chief Mechanical Engineer or
\nhis authorised representative certifies each coach as having
\nbeen built  to his  satisfaction”. It  is also apparent from
\nthe contract that the contractor has to complete two coaches
\neach month  after expiry  of the  first six  months  of\t the
\ncontract. It  is also  clear that the con tractor has to get
\npayment by  submitting running\tbill; on  completion of\t the
\ncoaches every  month. In  the above  context when  clause 17
\nrefers to a fictional completion or the building work on the
\ndate of\t certificate by the Chief Mechanical Engineer or his
\nauthorised representative  there is  no\t requirement  for  a
\nfurther\t ritual\t  of  delivery\tor  handing  over  to  which
\nreference made\tin clauses  15 and.  ‘ 23  respectively. The
\nwork is\t undertaken in\tthe  Railway  premises.\t people\t are
\nadmitted on  gate passes for building the railway coaches on
\nthe under  frames supplied  by\tthe  Administration.\tSome
\nmaterials such\tas electrical  goods. were  supplied by\t the
\nRailway.   Besides, there is cooperation of Railway’s labour
\nwith the  contractor’s labour  in construction\tof the coach
\nthe hand-rake  arrangements in\tthe Guard’s  compartment are
\nalso agreed  to be  done by the ‘Railway. Regular inspection
\nof the\tcontractor’s work  is carried  out at  all times and
\ninstructions to\t rectify defects  have\tto  be\tcarried\t out
\nimmediately.   Unless a\t close inspection  of  the  work  is
\ncarried out  from day to day, it may be difficult to rectify
\ndefect t  after the  work progresses.\tAll this would go to
\nshow that  the predominant  element in\tthe contract  is the
\nwork and  labour   aspect and  supply of  materials is\tonly
\naccessory although  the materials  were definitely necessary
\nfor execution  of the  work.  There is yet another important
\nclause which throws a flood of light on this issue Clause 25
\ndeals with  the contractor’s  insolvency or  death.   It  is
\nagreed between\tthe parties,  as per  clause 25, that if the
\ncontractor dies,  his legal  representatives shall  have  no
\ninterest whatsoever  in this  agreement save in respect of a
\nclaim for  the money due for the work already done under the
\ncontract and  for the return of the security deposit subject
\nto other  provisions.  This would also clearly show that the
\ncontract is  a works  contract\tand  unfinished\t work  would
\nbecome the property of Railway and the legal representatives
\nwill be\t entitled only\tto claim  for the  value of the work
\ndone.\tThere is no provision in the agreement in that event
\nfor handing  over of  the unfinished  railway coach  by\t the
\nrespondent or  his legal representatives or assignees to the
\nRailway\t Administration.      The   Railway   Administration
\nautomatically becomes  the owner  of the unfinished property
\nwhich was lying in its premises.  This is another reason why
\nno exaggerated\timportance can\tbe  assigned  to  the  words
\n“delivery”  and\t  ”  handed  over”  in\tclauses\t 15  and  23
\nrespectively as urged by Mr. Desai.\n<\/p>\n
     This is  therefore, not a contract where it can be said
\nthat there  is an  agreement to\t supply a  completed railway
\ncoach which  when produced  will  be  the  property  of\t the
\ncontractor. Along  with those  of the contractor’s materials
\nand labour of Railway are also required to be
\n141<\/span>
\n  !THIS PAGE IS NOT WELL SCANED
\n142<\/span>
\n     the value\tof the materials us conclusive although such
\n     matters may  be taken into consideration in determining
\n     i the  circumstance of  a particular  case whether\t the
\n     contract is in substance one for work and labour or one
\n     for the sale of the chattel”.\n<\/p>\n
     It can  be treated\t as well-settled  that there  is  no
\nstandard formula by which one can distinguish a contracts of
\nsale from  a contract for work and labour. There may be many
\ncommon features\t in both  the  contracts,  some\t neutral  in
\nparticular context  and yet  certain clinching\tterms  in  a
\ngiven case may fortify a conclusion one way or the other. It
\nwill depend  upon the  facts and circumstances of each case.
\nThe question  is not  always easy and has for all time vexed
\njurists all over.\n<\/p>\n
     In\t Commissioner\tof  Commercial\t Taxes,\t Mysore\t  v.
\nHindustan Aeronautical\tLtd.<\/a>(1) a  bench of  five Judges  of
\nthis Court  to which  my learned  brother was a party had to
\ndeal with  a works  contract With  regard to manufacture and
\nsupply of railway coaches. This Court after consideration of
\nall the\t facts In  that case and the salient features of the
\ncontract came  to the  conclusion that\tit was\ta pure works
\ncontract with  Court further  held that the case was in line
\nwith the decision in State of Gujarat v. Kailash Engineering
\nCo.<\/a>(2). Indeed Kailash Engineering’s case (supra) was relied
\nupon by\t the respondent\t before us. It was held in that case
\nthat  as  the  terms  of  the  contract\t indicate  that\t the
\nrespondent was\tnot to\the the\towner of  the ready  railway
\ncoaches and  that the property in those bodies vested in the
\nRailway\t even\tduring\tthe  process  of  construction,\t the
\ntransaction was clearly a works contract and did not involve
\nany sale.\n<\/p>\n
     Mr. Desai\tstrenuously contends that clause (29) of the
\ncontract in Kailash Engineering’s case (supra) distinguishes
\nthat case  from the  case at  hand Clause  29 was a specific
\nprovision for certain contingencies in case of loss theft or
\ndestruction  of\t  the  materials   or  plant.  This  special
\nprovision was  to the  effect  that  the  liability  of\t the
\ncontractor  was\t  not  to   be\t diminished   in   any\t way
\nnotwithstanding the fact that the materials and plant became
\nthe property  of the Railway as soon as they were brought to
\nthe Railway  premises. We  however do  not see much point in
\nthis submission\t In that  case since the plant and materials
\nwere brought  on the  site when\t the  contract\twere  to  be
\nconstructed the\t ownership is  said to\thave vested  in\t the
\nRailway. In  the present  case also  substantially the\tsame
\nresult follows.\t The agreement\there  shows  that  when\t the
\ncontractor dies\t his legal representatives or assignees have
\nno interest  in the  contract which terminates and they will
\nbe only paid for the value of the work done. This would mean
\nthe property  constructed  upto\t that  point  was  impliedly
\nagreed upon  to\t be  vested  in\t the  Railway  as  and\twhen
\nmaterials  were\t  worked  into\tthe  chassis.  This  is\t the
\nimplication of the agreement and not merely on the theory of
\naccretion. At  any rate the passing of property in this case
\nis ancillary  to the  primary contract\tfor execution of the
\nwork.\n<\/p>\n
(1) (1972) 29 S. T. C. 438.\t   (2) (1967) 19 S. T. C. 13
\n143<\/span>
\n     In the  Slate of  Madras v. Richardson & Cruddas Ltd(1)
\nthis Court  was dealing\t with a contract for fabrication and
\ninstallation of\t steel structure  for sugar  factory in\t the
\nState of  Mysore. In  the course  of the judgment this Court
\nobserved as follows:-\n<\/p>\n
\t  It  had  therefore  to  be  established  that\t the
\n     consideration was\treceived under\ta contract  to\tsell
\n     specific goods  for a  price and  property in the goods
\n     contracted to  be sold  passed to\tthe society when the
\n     goods were delivered in a pursuance of the contract. If
\n     the contract was for completing the stipulated work and
\n     for that  purpose to  use materials  belonging  to\t the
\n     respondents in  the performance  or  execution  of\t the
\n     contract as accessory to `work and labour’ the contract
\n     must be regarded as a works contract and not a contract
\n     for sale  even in\tthe property in the goods ultimately
\n     passes as a result of the contract .
\n     The Court further observed at page 252 as follows .
\n\t  The  contract\t being\tone  for  supplying  for  an
\n     inclusive price a specially designed fabricated unit to
\n     be\t assembled   and  installed   by  specially  trained
\n     technicians ill the premises of the customer it was not
\n     a contract for sale of a unit or different parts of the
\n     unit is specials good but a works contract .<\/p><\/blockquote>\n
     In the Government of Andhra Pradesh. v. Guntur Tabaccos
\nLtd.<\/a>(2) this  Court dealing with an identical issue observed
\nas follows at page 255:\n<\/p>\n
\t  The fact  that in  the execution of a contract for
\n     work some\tmaterials are used and property in the goods
\n     so used  passes  to  the  other  party  the  contractor
\n     undertaking to  do the  work will\tnot  necessarily  be
\n     deemed on that account to sell the materials .\n<\/p><\/blockquote>\n
Again at page 258:\n<\/p>\n
\t  Whether a contract for service or for execution of
\n     work invokes a taxable sale of goods must be decided on
\n     the facts\tand circumstances of the case. The burden in
\n     such a  case lies\tupon the  taxing authorities to show
\n     that there\t was a\ttaxable sale  and that burden is not
\n     discharged by  merely showing  that property  in  goods
\n     which belonged  to the  party per\tforming\t service  or
\n     executing the  contract stands transferred to the other
\n     party .\n<\/p><\/blockquote>\n
     This Court\t in  Commissioner  of  Sales  Tax,  M.P.  v.\n<\/p><\/blockquote>\n
Purshottam Premji(3)  dealt with  the difference  between  a
\ncontract of work or service and a contract for sale of goods
\nin the following passage:\n<\/p>\n
\t  The primary difference between a contract for work
\n     or service\t and a contract for sale of goods in that in
\n     the former
\n(1) (1968) 21 S. T. C. 215.\t (2) (1965) 16 S. T. C. 240.\n<\/p><\/blockquote>\n
\t\t (3) (1970) 26 S. T. C. 38.\n<\/p><\/blockquote>\n
144<\/span><\/p>\n
     there is  in the  person performing  work or  rendering
\n     service no\t property in  the thing\t produced as a whole
\n     notwithstanding that  a part  or even the whole of` the
\n     material’ used  by him  may have  been his property. In
\n     the case of a contract for sale the thing produced as a
\n     whole has individuals existence as the sole property of
\n     the party\twho produced it at some time before delivery
\n     and the property therein passes only under the contract
\n     relating there   to  the other  party for\tprice.\tMere
\n     transfer of  property in goods used in, the performance
\n     of a  contract is\tnot sufficient; to constitute a sale
\n     there must\t be an agreement express or implied relating
\n     to the sale of goods and completion of the agreement by
\n     passing of\t title in  the very goods contract the to be
\n     sold. Ultimately  the true\t effect of an accertion made
\n     pursuance to  a contract  has to  be judged  not by  an
\n     artificial rule  that the\taccretion may he presumed to
\n     have become  by vitrue of affixing to a chattel part of
\n     that chattel  but from  the intention of the parties to
\n     the contract.<\/p><\/blockquote>\n
     We are  fortified by  all the  above decisions  of this
\nCourt in our conclusion in favour of the assessee.\n<\/p>\n
     We are  therefore clearly\tof opinion that the contract
\nin the\tpresent case  is one  of works contract and the High
\nCourt is  not in  answering the\t question in  favour of\t the
\nassessee. The  appeals therefore fail and are dismissed with
\ncosts. One hearing fee for counsel.\n<\/p>\n
P.B.R.\t\t\t\t\t  Appeals dismissed.\n145<\/span>\n<\/pre>\n","protected":false},"excerpt":{"rendered":"
Supreme Court of India State Of Gujarat (Commissioner Of … vs M\/S. Variety Body Builders on 26 April, 1976 Equivalent citations: 1976 AIR 2108, 1976 SCR 131 Author: P Goswami Bench: Goswami, P.K. 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: […]<\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_lmt_disableupdate":"","_lmt_disable":"","_jetpack_memberships_contains_paid_content":false,"footnotes":""},"categories":[30],"tags":[],"class_list":["post-186652","post","type-post","status-publish","format-standard","hentry","category-supreme-court-of-india"],"yoast_head":"\nState Of Gujarat (Commissioner Of ... vs M\/S. 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