1958 (9) TMI 59 - HC - VAT and Sales Tax

Summary

Issues Involved:
1. Validity and proper rate of levying tax on the sales tax collected by the assessee.
2. Proper method of assessing workshop transactions, particularly regarding works contracts and the sale of materials.

Issue-Wise Detailed Analysis:

1. Validity and Proper Rate of Levying Tax on the Sales Tax Collected by the Assessee:

The assessee did not contest the correctness of the Appellate Tribunal's finding regarding the tax liability on the sales tax collected by the assessee and the rate of levy. This was in view of the decisions in "State of Madras v. Bangalore Automobiles" and "Sundararajan and Co. Ltd. v. State of Madras". Therefore, this issue was not argued before the High Court.

2. Proper Method of Assessing Workshop Transactions:

The primary question argued was the propriety of the assessment concerning workshop transactions. The validity of the provisions of the Sales Tax Act in regard to works contracts was considered in light of the judgment in "Gannon Dunkerley and Co. v. State of Madras", which was affirmed by the Supreme Court in "State of Madras v. Gannon Dunkerley and Co., Ltd."

The Supreme Court held that "a power to enact a law with respect to tax on the sale of goods must relate in fact to the sale of goods, and the Provincial Legislature cannot tax transactions that are not sales by merely enacting that they shall be deemed to be sales."

Contracts Involving Labour and Work:

The court distinguished between pure labour contracts and contracts involving the transfer of property in goods. It was emphasized that a contract purely for the supply of labour and work is not a sale of goods. The property in the materials used in a building contract, for instance, does not pass as movable property unless there is an agreement to that effect.

Assessment Based on Artificial Proportions:

The assessment was based on an artificial proportion of 30% labour charges and 70% cost of materials, as prescribed by the rules under the Act. This method was deemed illegal as it treated the contract as an integral one and levied tax on 70% of the turnover, contrary to the Supreme Court's ruling.

Nature of Transactions in the Workshop:

The court examined a typical bill issued by the assessee, which included charges for motor parts, labour, and fabricated materials. The fabricated materials, such as king pin bushes, were manufactured ad hoc for repairs and not as part of a commercial undertaking. The court held that there was no agreement between the parties to sell these fabricated parts as such, and therefore, they could not be taxed as sales.

Conclusion:

The court concluded that the charges for fabricated materials should be treated as part of the works contract and not as independent sales. Consequently, the disputed turnover for the assessment year 1949-50, including labour charges, contracts not involving the sale of spare parts, and fabricated parts, was not liable to be taxed. The assessments for the years 1950-51, 1951-52, and 1952-53 were also to be revised on the same lines.

The revision cases were allowed to the extent indicated, with costs awarded in one case (T.R.C. No. 233 of 1956) and a counsel's fee of Rs. 250.