1962 (12) TMI 52 - HC - VAT and Sales Tax

Summary

Issues Involved:

1. Whether the transaction covered by the bill dated 4th October, 1958, is a sale.
2. If it is a sale, whether any tax is payable in respect of the same.
3. Whether the contract for building, erecting, and furnishing 3 B.G. coaches over the chassis supplied by the Railway is a works contract not amounting to sale or a transaction of sale.

Issue-wise Detailed Analysis:

1. Whether the transaction covered by the bill dated 4th October, 1958, is a sale:

The applicant-company, an engineering concern, entered into a contract with the Western Railway Administration to construct III class passenger coaches. The Railway Administration provided broad gauge underframes, and the applicant was responsible for building, erecting, and furnishing the coach bodies. The applicant constructed three coaches and submitted a bill on 4th October, 1958, showing the net value of work done as Rs. 1,22,035. The applicant requested the Additional Collector of Sales Tax to determine if the materials and labor used for the construction of the coaches constituted a sale under the Bombay Sales Tax Act, 1953. The Additional Collector answered affirmatively, treating the transaction as a sale.

2. If it is a sale, whether any tax is payable in respect of the same:

The Additional Collector of Sales Tax held that the transaction was a sale and that tax was payable. The applicant appealed to the Sales Tax Tribunal, which dismissed the appeal, upholding the Additional Collector's decision. The matter was then referred to the High Court for determination.

3. Whether the contract for building, erecting, and furnishing 3 B.G. coaches over the chassis supplied by the Railway is a works contract not amounting to sale or a transaction of sale:

The applicant contended that the contract was a works contract with no element of sale, relying on the recital in the contract and clause 29 of the general conditions, which stated that materials brought to the site became the property of the Railway. The High Court examined the contract, including the conditions of tender, the agreement, and the general conditions. The Court noted that the contract involved building, erecting, and furnishing coach bodies on underframes supplied by the Railway, with the materials and plant brought by the contractor deemed to be the property of the Railway upon arrival at the site.

The Court referred to the definition of "sale" under the Bombay Sales Tax Act, 1953, and examined whether the transaction involved the transfer of property in goods. The Court considered the terms of the contract, which indicated that the main object was the performance of work and labor, not the transfer of chattel as chattel. The Court applied the test from Halsbury's Laws of England and Benjamin on Sale, concluding that the contract was for work and labor, not a sale of goods.

The Court distinguished this case from the Bombay High Court's decision in Mckenzies Limited v. The State of Bombay, where the contract was deemed a sale of goods. The Court emphasized that the present contract was indivisible and focused on the performance of work, with no agreement to sell materials as such. The Supreme Court's decision in State of Madras v. Gannon Dunkerley & Co. (Madras) Ltd. supported the conclusion that the transaction did not constitute a sale.

Conclusion:

The High Court concluded that the contract was a works contract not amounting to sale. The opponent (State) was directed to pay the costs of the reference to the applicants. The reference was answered accordingly.