State of Gujarat (Commissioner of
Sales Tax, Ahmadabad) Vs. M/S. Variety Body Builders  INSC 128 (26 April
KHANNA, HANS RAJ
CITATION: 1976 AIR 2108 1976 SCR 131 1976 SCC
CITATOR INFO :
RF 1977 SC 197 (6) D 1977 SC1537 (36) RF 1984
SC 744 (25)
Bombay sales Tax Act-Contracts for sale of
goods and' work contracts-Tests for deciding works contracts.
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 fulfillment
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.
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
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 there from 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
Clause (3) provides for security deposit
"for the due fulfillment 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
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
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 there
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 fulfillment
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
(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.
(14) At least two coaches to be delivered per
month after expiry of six months from the signing of the con tract. (Clause.
(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
(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.
(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.
(20) No subletting of contract wholly or in
part without the previous written consent of Chief Mechanical Engineer. (Clause
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.
(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.
(29) Contractor to pay fair wages to
labourers employed. (Clause 30).
(30) Contractor to abide by safety rules.
(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
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
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
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
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
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
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.
144 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 thereto 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 them
to be sold. Ultimately the true effect of an accretion made pursuance to a
contract has to be judged not by an artificial rule that the accretion may be
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.