1963 (2) TMI 41 - HC - VAT and Sales Tax

Summary

Issues Involved:
1. Whether the entire cost of the ready-made bodies of the buses is liable to tax under the U.P. Sales Tax Act or only the cost of materials used in the manufacture thereof would be taxable.

Issue-wise Detailed Analysis:

1. Nature of the Contract: Sale of Goods vs. Contract for Work and Labour
The primary issue was to determine whether the transaction between the assessee and the customer constituted a sale of goods or a contract for work and labour. The assessee constructed bus bodies on chassis supplied by customers, and the Sales Tax Officer initially assessed the entire turnover as taxable. The learned Judge (Revisions) reduced the taxable turnover by excluding labour charges, concluding that the contract was for construction work, not the sale of ready-made bus bodies. The distinction between a contract of sale and a contract for work and labour was emphasized, with reference to Halsbury's Laws of England, which states that a contract of sale involves the transfer of property in a chattel, whereas a contract for work and labour involves producing a result using skill and labour.

2. Ownership and Transfer of Property
It was established that the materials used for constructing the bus bodies were owned by the assessee and that the completed bus body, once fixed to the chassis, could be considered a proper subject of sale. The court concluded that the transaction involved a transfer of property in the bus body, making it a contract of sale rather than a contract for work and labour.

3. Precedents and Analogies
The judgment referenced several precedents to support its conclusion. In Mckenzies Ltd. v. State of Bombay, the entire amount realized for constructing bus bodies was considered turnover for sales tax purposes. Similarly, in Love v. Norman Wright (Builders) Ltd., the contract for preparing and fixing curtains was deemed a sale of goods. Analogies were drawn to illustrate the principles, such as a tailor making a suit from cloth supplied by a customer, which would be a contract for work, versus a tailor supplying cloth and making a suit, which would be a sale.

4. Distinguishing Factors and Supreme Court Decisions
The court distinguished the present case from other cases cited by the assessee's counsel, such as Kays Construction Co. v. Judge (Appeals), Sales Tax, Allahabad, and Supreme Court decisions in State of Madras v. Gannon Dunkerley and Co. (Madras) Ltd. and Carl Still G.m.b.H. and Another v. State of Bihar and Others. These cases involved building contracts or contracts for setting up machinery, which were deemed contracts for work and labour. However, the court found that these cases did not apply to the present situation, where the transaction was for the sale of a completed bus body.

5. Conclusion and Tax Liability
The court concluded that the transaction was for the sale of the completed bus body and not merely the materials used in its construction. Therefore, the entire cost of the ready-made bodies of the buses was liable to tax under the U.P. Sales Tax Act. The court assessed the costs of the reference at Rs. 100, to be paid by the assessee to the Commissioner, Sales Tax, U.P.

Judgment:
The High Court answered the reference by stating that the entire cost of the ready-made bodies of the buses is liable to tax under the U.P. Sales Tax Act, not just the cost of materials used in the manufacture. The judgment emphasized that the predominant element of the contract was the sale of the bus body, and thus, the entire turnover was taxable.