1969 (12) TMI 100 - HC - VAT and Sales Tax

Summary

Issues Involved:
1. Nature of the contract: whether it is a contract of work and labour or a contract for the sale of goods.
2. Applicability of the relevant notification for tax purposes.
3. Validity of the notification under section 3-A of the U.P. Sales Tax Act.

Detailed Analysis:

1. Nature of the Contract:
The petitioner, a partnership firm operating an automobile service station, entered into a contract with the Deputy Director of Agriculture, U.P., to fabricate and supply two steel bus bodies on chassis provided by the Deputy Director. The petitioner claimed exemption from sales tax, arguing that the contract was for work and labour, not for the sale of goods. The court examined whether the contract was for the sale of goods or for work and labour by referring to the intention of the parties as gathered from the contract terms. The court relied on two Supreme Court decisions, Patnaik & Co. v. State of Orissa and McKenzies Ltd. v. State of Maharashtra, which involved similar contracts for bus body fabrication and supply. The court noted that the bus bodies were treated as units to be delivered on chassis, and the property in the bus bodies did not pass to the government until delivery. Based on these considerations, the court held that the contract was for the sale of goods and thus liable to tax.

2. Applicability of the Relevant Notification:
The court then analyzed whether the bus bodies fell under the notification issued under section 3-A of the U.P. Sales Tax Act, which taxed certain commodities at a single point at 10%. The notification included "motor tyres and tubes and spare parts of motor vehicles." The court determined that a bus body could not be considered a "spare part" of a motor vehicle, as spare parts are typically duplicate parts kept for replacement. Bus bodies are custom-fabricated and not available as ready-made parts in the market. Therefore, the court concluded that the bus bodies did not fall under the notification, and the tax imposed at 10% was incorrect.

3. Validity of the Notification:
Since the petition succeeded on the second ground, the court did not find it necessary to adjudicate on the third contention regarding the validity of the notification under section 3-A of the Act. Consequently, no opinion was expressed on this point.

Conclusion:
The court allowed the petition, quashing the assessment order dated 29th January 1969, for the assessment year 1967-68. The petitioner was entitled to costs. The judgment emphasized that the contract was for the sale of goods, not work and labour, and the bus bodies did not fall under the relevant tax notification.