1964 (11) TMI 80 - HC - VAT and Sales Tax

Issues Involved:
1. Determination of whether the contract was a works contract or a composite contract involving sale and service.
2. Evaluation of the intention of the parties in the contract.
3. Analysis of the passing of property in materials used.
4. Assessment of the nature of the contract as one of work and labour versus a contract of sale.

Detailed Analysis:

1. Determination of Whether the Contract was a Works Contract or a Composite Contract Involving Sale and Service:
The primary issue was whether the contract between the applicants and their customers, Messrs Pacific Traders, was a works contract or a composite contract involving both the sale of jari materials and the execution of embroidery work. The Deputy Commissioner initially held that the contract was a sale of jari materials, as the customer must have known that the applicants would charge for the jari goods used in the embroidery. The Sales Tax Tribunal upheld this view, concluding that the contract was for the supply of materials and the execution of embroidery work, with the property in the materials passing to the customer before they were affixed to the saris.

2. Evaluation of the Intention of the Parties in the Contract:
The court emphasized that the determination of whether a contract is for work and labour or involves a sale depends on the intention of the parties. The applicants argued that the contract was indivisible and that the property in the jari materials passed to the customer only as accretion when stitched to the saris. The learned Advocate-General contended that the intention could be inferred from the break-up of charges, which included the cost of jari materials, labour charges, and other expenses, suggesting a composite contract.

3. Analysis of the Passing of Property in Materials Used:
The court noted that the mere passing of property in materials does not constitute a sale unless it occurs as a result of an agreement for sale. The essence of the contract was to execute the embroidery work, with the use of jari materials being ancillary. The court referenced various cases, including Robinson v. Graves and State of Madras v. Gannon Dunkerley & Co., to illustrate that the primary object of a contract of work and labour is not the transfer of a chattel but the execution of work and labour.

4. Assessment of the Nature of the Contract as One of Work and Labour Versus a Contract of Sale:
The court concluded that the contract was essentially one of service and work, with the supply of jari materials being merely ancillary. The break-up of the bill produced by the applicants before the Deputy Commissioner was to explain the various components of the bill, but the actual bill sent to the customer was a consolidated one. The court held that the contract was one and indivisible, and the supply of jari materials in the execution of the embroidery work did not constitute a separate sale.

Conclusion:
The court answered the reference by stating that the agreement was a contract of work and not a composite one that included a sale of the jari materials. The respondent was ordered to pay the costs of the reference to the applicants. The judgment emphasized the importance of the intention of the parties and the nature of the contract in determining whether it involves a sale or is purely a service contract.

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