1963 (4) TMI 59 - HC - VAT and Sales Tax

Summary

Issues Involved:
1. Nature of the contract (works contract vs. sale of goods).
2. Determination of tax liability under the Bombay Sales Tax Act, 1959.
3. Intention of the parties in the contract.
4. Passing of property in goods (movables vs. immovables).
5. Composite contracts and their divisibility.

Detailed Analysis:

1. Nature of the Contract (Works Contract vs. Sale of Goods):
The primary issue was whether the contract between the respondent and their customer was a works contract or a contract for the sale of goods. The respondents argued that the contract was purely for work and labour, akin to building construction contracts, which do not involve the sale of goods. The Deputy Commissioner of Sales Tax, however, determined that the contract was composite, consisting of two distinct parts: one for the supply of goods and the other for work and labour. The Tribunal later disagreed, viewing the contract as indivisible and purely a works contract.

2. Determination of Tax Liability under the Bombay Sales Tax Act, 1959:
The respondents sought a determination under section 52(c) of the Bombay Sales Tax Act, 1959, on whether the supply of materials in their contracts constituted a sale and thus was subject to sales tax. The Deputy Commissioner concluded that the supply of materials was indeed a sale within the meaning of section 2(28) of the Act, making it taxable. Conversely, the Tribunal held that no sale was involved, and thus, the respondents were not liable for tax.

3. Intention of the Parties in the Contract:
The judgment emphasized that whether a contract is for sale or work depends on the terms of the contract and the intention of the parties. For a transaction to be considered a sale, there must be an agreement to transfer the title to goods for money consideration, and the property must actually pass in the goods. The court analyzed whether the parties intended to sell the materials as chattels or whether the supply of materials was merely incidental to the execution of the work.

4. Passing of Property in Goods (Movables vs. Immovables):
The respondents argued that the materials supplied became part of the immovable property (the building) once affixed, and thus, the property in the materials passed only after they were fixed, not as movables. The Deputy Commissioner rejected this argument, stating that the goods were not permanently fastened to the building and remained chattels. The court further clarified that the mere attachment of goods to a building does not necessarily make them immovable property.

5. Composite Contracts and Their Divisibility:
The court discussed the nature of composite contracts, which may consist of separate agreements for the supply of goods and for work and labour. It provided examples to illustrate when a contract may be considered divisible, with one part involving the sale of goods and the other involving work and labour. The judgment concluded that the contract in question was composite and divisible, with the supply of materials constituting a sale.

Conclusion:
The court ultimately held that the contract was not purely a works contract but a combination of two distinct agreements: one for the supply of goods and the other for work and labour. The supply of materials was deemed a sale, making it taxable under the Bombay Sales Tax Act, 1959. The respondents were ordered to pay the costs of the petition, and the reference was answered accordingly.