1970 (12) TMI 84 - HC - VAT and Sales Tax

Issues Involved:
1. Whether the transactions of building bus and lorry bodies on the chassis supplied by customers amount to "sales" or "works contracts".
2. Determination of the applicable sales tax rate: whether it should be 2% for general goods or 7% for motor vehicles and their parts.

Detailed Analysis:

Issue 1: Nature of Transactions - Sales or Works Contracts
The petitioner was engaged in constructing bus and lorry bodies on chassis provided by customers. The turnovers for the years 1960-61, 1961-62, and 1962-63 were Rs. 97,153.00, Rs. 1,02,950.00, and Rs. 1,06,796.00 respectively. The petitioner contended that these transactions were works contracts and not sales, and thus not subject to sales tax. Alternatively, even if considered sales, the petitioner argued they should be taxed at 2% under the general goods category, not 7% as component parts of motor vehicles.

All lower tribunals, including the Deputy Commercial Tax Officer, the Assistant Commissioner of Commercial Taxes, and the Sales Tax Appellate Tribunal, found against the petitioner, treating the transactions as sales.

The court examined whether the transactions involved the transfer of property in goods or merely fitting, improvement, or repair of movable property. The petitioner used his materials and charged a consolidated amount, without separately itemizing material and labor costs. The court noted that the essence of the contract was the delivery of a finished body fitted to the chassis, which constituted a sale of goods rather than a works contract.

The court referenced the definition of "sale" in Section 2(n) of the Act, emphasizing that it includes "every transfer of the property in goods by one person to another in the course of trade or business for price." The court also considered the definition of "works contract" in Section 2(t) of the Act, noting it involves agreements for construction, fitting out, improvement, or repair of property.

Citing several precedents, including Supreme Court decisions in Patnaik and Company v. State of Orissa and McKenzies Ltd. v. State of Maharashtra, the court concluded that such transactions are sales. The court emphasized that the contracts involved the transfer of ownership of the bus or lorry bodies, making them subject to sales tax. The court dismissed the petitioner's reliance on State of Rajasthan v. Man Industrial Corporation Ltd., as it was factually distinct.

Issue 2: Applicable Sales Tax Rate
The court then addressed whether the transactions should be taxed at 2% or 7%. Item 7 of Schedule II of the Act specified a 7% tax rate for "motor vehicles, including motor cars, motor taxi cabs, motor cycles, and component parts of motor vehicles."

The court determined that the body of a motor vehicle is a part or component of the vehicle. A chassis alone does not constitute a vehicle; it requires a body to become a functional vehicle. Therefore, the body is an integral part of the vehicle and falls under the 7% tax rate for motor vehicles and their parts.

The court considered the petitioner's argument regarding the legislative amendment that explicitly included motor bodies in the tax category. The court concluded that the amendment was likely made to clarify existing law rather than change it. Thus, even before the amendment, motor bodies were considered parts or components of motor vehicles, subject to the higher tax rate.

Conclusion
The court held that:
1. The transactions of building bus and lorry bodies were "sales" within the meaning of the Act, not merely "works contracts."
2. The applicable sales tax rate for these transactions was 7%, as the bus and lorry bodies were considered component parts of motor vehicles.

Accordingly, the court dismissed the petitions with costs, affirming the decisions of the lower tribunals.

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