1965 (1) TMI 49 - SC - VAT and Sales Tax

Whether the transaction referred to in bill dated 29th June, 1955, is liable to sales tax under the Bombay Sales Tax Act, 1953? Held that - Appeal dismissed. Reading the contract as a whole, we are in agreement with the High Court of Bombay that it is a contract for the sale of goods and not a contract for work and labour. It will be noticed that the bodies are spoken as composite bodies or as units throughout the contract and property in the bodies passes to the Government on delivery, and when the property passes the bodies are goods. The fact that a progress report had to be given only ensured prompt delivery. There is no clause in the agreement which militates against the contract being a contract for the sale of goods.

Summary

Issues:
- Interpretation of contract as sale of goods or contract for work and labor under the Bombay Sales Tax Act, 1953

Analysis:
The case involved an appeal against the judgment of the Bombay High Court regarding the liability of a transaction to sales tax under the Bombay Sales Tax Act, 1953. The appellant, engaged in body-building on motor chassis, entered into a contract with the Government of India for the construction of 218 bodies. The price agreed upon was Rs. 1,730 per body, and a bill was presented for five bodies supplied. The appellant sought determination on whether they were dealers within the Act, whether body-building contracts constituted sales, and if receipts were liable to sales tax. The Additional Collector ruled in the affirmative, which was upheld by the Sales Tax Tribunal. The High Court also answered in the affirmative, leading to the appeal before the Supreme Court.

The Supreme Court analyzed the contract terms to determine if it was a sale of goods or a contract for work and labor. The contract specified the construction and supply of bodies, with delivery deadlines and other conditions. The price was exclusive of sales tax, and property in the bodies passed to the Government on delivery. The Court agreed with the High Court's interpretation that the contract was for the sale of goods, as evidenced by the passing of property and absence of clauses against it being a sale.

However, a separate judgment by Justice Shah disagreed with the majority opinion. Justice Shah viewed the contract as one for work and labor based on various terms and conditions. These included the obligation to submit progress reports, approval requirements for construction components, and the authority of inspecting bodies to reject work not meeting contract terms. Due to these reasons, Justice Shah opined that the contract should be considered a contract for work and not for sale.

Ultimately, the majority opinion prevailed, and the appeal was dismissed with costs. The Court held that the contract was indeed a sale of goods, leading to the liability for sales tax under the Bombay Sales Tax Act, 1953.