1975 (1) TMI 70 - HC - VAT and Sales Tax

Summary

Issues Involved:
1. Whether the transaction between the applicants and their customer was a transaction of sale.
2. Whether any tax was payable in respect of the transaction.
3. Whether the contract was divisible or indivisible.

Detailed Analysis:

1. Whether the transaction between the applicants and their customer was a transaction of sale:
The applicants contended that the contract was an entire and indivisible contract for work and labour, with no sale of materials involved. The Deputy Commissioner of Sales Tax and the Tribunal, however, held that the contract was a composite one consisting of two parts: one for the sale of goods (tiles) and the other for services (setting and polishing tiles). The Court examined the contract and found that it provided for "supplying, setting and polishing" of tiles at specified rates, indicating a sale of goods component.

2. Whether any tax was payable in respect of the transaction:
The Deputy Commissioner determined that the sale part of the contract was subject to sales tax and general sales tax under section 10 of the Bombay Sales Tax Act, 1959. The Tribunal confirmed this view. The Court upheld this determination, noting that the contract was severable into a sale of goods and a provision of services, making the sale part taxable.

3. Whether the contract was divisible or indivisible:
The Court discussed the principles established by the Supreme Court for determining the nature of a contract involving both goods and services. The intention of the parties, as gathered from the terms of the agreement, is crucial. The Court found that the contract in question fell under sub-clause (b) of clause 3, which pertains to work and labour contracts involving the supply of materials. However, the Court rejected the argument that such contracts are entirely indivisible for work and labour. Clauses 8 and 9(a) of the contract indicated that the applicants treated the sale of tiles separately from the setting and polishing services. Clause 9(a) specifically allowed the applicants to terminate the fixing part of the contract, limiting their liability to the supply of tiles only, thus making the contract severable.

The Court distinguished the present case from the Supreme Court decision in Carl Still G.m.b.H. v. State of Bihar, where the contract was found to be an indivisible works contract. Here, the terms of the contract, particularly clauses 8 and 9, indicated a clear intention to treat the sale of tiles separately from the services, making the contract divisible.

The Tribunal's finding that 85% of the contract amount was attributable to the sale of tiles was upheld, based on the payment terms which required 25% advance, 60% on delivery, and the remaining 15% during setting and polishing.

Conclusion:
The Court answered the reference question in the affirmative, affirming that the Tribunal was justified in holding that the transaction was in respect of a divisible contract, with part of the consideration liable to tax under the Bombay Sales Tax Act, 1959. The applicants were ordered to pay the costs of the reference to the respondent.