1962 (3) TMI 61 - HC - VAT and Sales Tax

Summary

Issues Involved:
1. Whether the applicants were dealers within the meaning of the Bombay Sales Tax Act, 1953, in respect of their activities as body-building contractors.
2. Whether the transaction referred to in the bill dated 29th June, 1955, is liable to sales tax under the Bombay Sales Tax Act, 1953.

Issue-Wise Detailed Analysis:

1. Whether the applicants were dealers within the meaning of the Bombay Sales Tax Act, 1953, in respect of their activities as body-building contractors:

The applicants, Messrs Mckenzies Limited, entered into a contract with the Government of India to construct 218 motor bodies. The Sales Tax Tribunal, upon reviewing the terms of the contract, concluded that the intention of the parties was to sell and purchase manufactured motor-bodies. Consequently, the Tribunal determined that the contract was for the sale of goods, and the applicants were dealers within the meaning of the Bombay Sales Tax Act, 1953, in respect of their body-building activities.

The applicants contested this view, arguing that the contract was not for the sale of goods but for construction, with materials supplied as part of the construction process. They referenced the Supreme Court decision in State of Madras v. Gannon Dunkerley & Co. (Madras) Ltd., asserting that the contract was indivisible and the materials did not pass as goods but as part of the construction.

However, the court emphasized that the nature of the contract must be determined by its terms and the parties' intentions. Citing Halsbury's Laws of England, the court noted that a contract of sale involves the transfer of property in a chattel as a chattel. The contract in question required the applicants to manufacture and deliver completed motor bodies, indicating an intention to sell the finished articles. Thus, the court upheld the Tribunal's finding that the contract was for the sale of goods, making the applicants dealers under the Act.

2. Whether the transaction referred to in the bill dated 29th June, 1955, is liable to sales tax under the Bombay Sales Tax Act, 1953:

The second issue concerned the liability of the transaction to sales tax. The Tribunal held that the transaction, being one of the sale of goods, was liable to sales tax under the Bombay Sales Tax Act, 1953.

The applicants argued that the contract was for work and labour, not for the sale of goods, referencing several cases, including Anglo-Egyptian Navigation Co. v. Rennie and Carl Still G. m. b. H. v. State of Bihar. They contended that the materials used in construction did not constitute a sale of goods but were incidental to the construction work.

The court, however, distinguished these cases, noting that the contract in question specifically involved the sale and purchase of the constructed motor bodies. The court reiterated that the intention of the parties was to sell the finished motor bodies as goods, making the transaction liable to sales tax.

The court further clarified that in a building contract, materials do not pass as movables but as part of the construction. However, in the present case, the contract involved the sale of the constructed bodies, with the materials passing as goods. The court concluded that the Tribunal's finding was correct, and the transaction was indeed liable to sales tax.

Conclusion:

The court answered both questions in the affirmative, confirming that the applicants were dealers within the meaning of the Bombay Sales Tax Act, 1953, and that the transaction referred to in the bill dated 29th June, 1955, was liable to sales tax. The applicants were ordered to pay the costs of the opponent, quantified at Rs. 250.