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2000 (7) TMI 864 - SC - VAT and Sales TaxSALE OR WORKS CONTRACT SHIP BUILDING CONTRACT CONTRACT FOR SUPPLY BY BUILDER OF VESSELS COMPLETE IN ALL RESPECTS TO OWNER
Issues Involved:
1. Whether the transactions involved in the manufacture and supply of ships by the appellant to its customers are a "sale" as defined in clause (n) of section 2 of the Andhra Pradesh General Sales Tax Act, 1957, or a "works contract" as defined in clause (t) of section 2 of the Act. Issue-wise Detailed Analysis: 1. Nature of Transactions: Sale or Works Contract The primary issue in these appeals is whether the transactions involving the manufacture and supply of ships by the appellant constitute a "sale" or a "works contract" under the Andhra Pradesh General Sales Tax Act, 1957. The appellant, M/s. Hindustan Shipyard Limited, argued that the transactions were works contracts and hence not liable to sales tax. The assessing authority and the Commissioner (Appeals) held that the transactions were sales and thus taxable. The Sales Tax Appellate Tribunal divided the contracts into two groups, following a previous High Court decision that similar contracts were works contracts. However, for the remaining contracts, the Tribunal applied a later decision which classified such transactions as sales. 2. Definitions and Legal Tests for Distinction The definitions of "sale" and "works contract" under clauses (n) and (t) of section 2 of the Act were crucial. The court noted that the distinction between a contract of sale and a works contract is complex and has been the subject of several judicial decisions. The intention of the parties, determined by the overall terms and conditions of the contract, is key. The court referenced several legal principles and tests from previous cases and authoritative texts to determine whether the primary object of the contract was the transfer of property in goods or the provision of work and labour. 3. Analysis of Contract Terms The court examined the terms of the contract between the appellant and the Great Eastern Shipping Co. Ltd., which was representative of the contracts in question. Key points included: - The appellant (builder) agreed to build and deliver ships to the customer (owner) for a fixed price. - The builder provided all materials and labour. - Payment was phased, with significant portions paid before the ship was fully built and delivered. - The property in the vessel was said to pass to the owner upon payment of the first instalment, but this was subject to the builder's lien for unpaid portions and the builder's responsibility for risks until delivery. 4. Judicial Precedents and Principles The court reviewed several precedents, including decisions in Patnaik and Company v. State of Orissa, Sentinel Rolling Shutters & Engineering Company Pvt. Ltd. v. Commissioner of Sales Tax, and Union of India v. Central India Machinery Manufacturing Co. Ltd. These cases highlighted the importance of the substance of the contract over its form, the ownership of materials, and the intention of the parties. The principles deduced included: - The main object of the contract determines whether it is a sale or a works contract. - If the property in goods passes to the buyer upon completion and delivery, it is a sale. - The involvement of the buyer's supervision or specifications does not necessarily change the nature of the contract. 5. Application to Current Case Applying these principles, the court concluded that the contracts in question were for the sale of ships. The ships were built to order, with the builder providing all materials and labour. The phased payments were seen as advance payments towards the purchase price. The property in the ships passed to the buyer upon delivery and acceptance, not progressively with each payment. The court found that the contracts involved the transfer of property in goods (ships) for a price, fitting the definition of a sale under the Act. Conclusion The court upheld the decisions of the High Court and the Tribunal, ruling that the transactions were sales and therefore subject to sales tax. The appeals were dismissed, and costs were to be borne as incurred. The contracts were determined to involve the sale of vessels within the meaning of clause (n) of the Andhra Pradesh General Sales Tax Act, 1957, and not merely works contracts as defined in clause (t).
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