1977 (4) TMI 150 - SC - VAT and Sales Tax

Whether the contract of the company with the Union of India for the supply of wagons is in the nature of contract for sale of goods or a works contract? Held that - Appeal dismissed. This Court held (by majority) that the contract as a whole was a contract for sale of goods and, therefore, the appellants were liable to sales tax on the amounts received from the State of Orissa for the construction of the bus bodies. In reaching at this conclusion the Court paid due regard to the fact that under that contract the property in the bus body did not pass to the Government till the chassis with the bus body was delivered at the destination to be named by the Controller. Till the delivery was made the bus body remained the property of the builder. This clinching circumstance prominently figures in Standard Condition 15 in the instant case also.

Issues Involved:

1. Whether the contract between the company and the Union of India for the supply of wagons is a contract for sale of goods or a works contract.
2. Whether the Union of India is justified in denying its liability to reimburse the petitioner-company for the sales tax paid on the supply of wagons.

Issue-Wise Detailed Analysis:

1. Nature of the Contract: Sale of Goods or Works Contract

The primary issue in this case was to determine whether the contract between the company and the Union of India for the supply of wagons was a contract for sale of goods or a works contract. The High Court of Rajasthan, after examining the terms and conditions of the contract, concluded that the contract was for the sale of wagons and not a works contract. The court emphasized the following points:

- The contract was expressly for the manufacture and supply of wagons for a price, with the price fixed per wagon.
- Payment was made in two installments: 90% on completion and 10% after delivery.
- Clause 15 of the Standard Conditions of Contract stated that upon payment of 90% of the value, the vehicles would become the property of the purchaser.
- Special Condition 4 allowed for "on account" payments up to 90% of the value of steel and other raw materials procured by the company, but this was part of the full contract price for each completed wagon.
- Special Condition 10 stipulated that no sales tax on materials would be reimbursed by the Railway Board, indicating that the company was the owner of the materials and liable for sales tax.

The Supreme Court affirmed the High Court's decision, noting that the bulk of the materials used in the construction of the wagons belonged to the company before their use. The court also highlighted that the contract had all the essential attributes of a contract of sale of movables, with the property in the goods passing to the purchaser upon completion and delivery.

2. Reimbursement of Sales Tax

The second issue was whether the Union of India was justified in denying its liability to reimburse the petitioner-company for the sales tax paid on the supply of wagons. The High Court held that the Union of India was not justified in denying its liability to reimburse the company for the sales tax. The court reasoned that since the contract was for the sale of wagons, the Railway Board was liable to reimburse the company for the sales tax paid on the sales of wagons under the contract.

The Supreme Court upheld this finding, stating that the contract was for the sale of wagons and, therefore, the Railway Board was liable to reimburse the company for the sales tax paid.

Conclusion:

The Supreme Court dismissed the appeal by the Union of India, affirming the High Court's decision that the contract in question was a contract for the sale of wagons and not a works contract. Consequently, the Railway Board was liable to reimburse the petitioner-company for the sales tax paid on the supply of wagons. The court emphasized the importance of examining the terms and conditions of the contract as a whole to determine the nature of the contract.

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