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TMI Blog1976 (4) TMI 190X X X X Extracts X X X X X X X X Extracts X X X X ..... h, 1957. The Tribunal had earlier delivered a common judgment in two revision applications No. 121 and No. 122 of 1961 and made a composite reference to the High Court under the Bombay Sales Tax Act stating the following question for answer: "Whether, on the facts and in the circumstances of the case, the three contracts for construction of coaches on the underframes supplied by the railway administration, the contracts containing similar terms were contracts for sale of goods and not works contracts." The facts appearing from the statement of case are as follows: The respondent, M/s. Variety Body Builders, Baroda, entered into three contracts with the Western Railway Administration for construction of railway coaches on the underframes supplied by the said railway administration. The three contracts were reduced into writing and contained the terms and conditions under which the contracts were to be performed. The first agreement dated September 17, 1954, was for construction of 25 N.G. coaches. The second agreement dated July 11, 1956, was in respect of construction of 6 T.L.R. coaches. The third agreement dated January 14, 1956, was for construction of 25 M.G. coaches. T ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tor hereby agrees to undertake the building of 25 Nos. Narrow Gauge Third Class Bogie Coaches on I.R.S. underframes to be provided by the Western Railway to the design indicated at the rate of Rs. 19,141 only. The said work of building bodies will be carried out by the contractor in the area of premises of the Western Railway Workshop at Pratapnagar, Baroda, or at such other location as may be mutually agreed upon". It also appears in the second part of clause (1) that each employee working under the contractor "for this work" will have a gate pass issued in his favour on a deposit of Rs. 5 for each gate pass. It is also stated in the second part of clause (1) that "all gate passes issued to the contractor are returnable within a week of termination of the contract". Clause (3) provides for security deposit "for the due fulfilment and completion of this contract". Clause (3) further says that the security deposit will be retained by the administration "for the due performance of and observance of the terms and conditions of this contract" and the same is liable to forfeiture "in the event of any breach on the part of the contractor of the terms and conditions of this contract". ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... inistration. Dates of completion of the building work will be deemed to be the respective dates on which the Chief Mechanical Engineer or his authorised representative certifies each coach as having been built to his satisfaction." Clause (18) provides that the railway authorities are free to inspect the work. "The Chief Mechanical Engineer or his authorised representative will be the sole judge to determine whether the standard of workmanship is according to the railway's requirement and whether any part or parts of the carriage require replacement due to bad or indifferent workman- ship." Clause (19) provides that "the contractor shall not under any circumstances sub-let this contract either in part or in full without the previous consent in writing of the Chief Mechanical Engineer..." Clause (20) provides for termination of the contract by giving one month's notice to the contractor "in the event of the contractor failing to execute the contractual duties with diligence, competence and expedition". Clause (21) provides for the duration of the contract, which in the normal course be in force for a period of 16 months from the date of signing of the same. There ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s has been held by a Constitution Bench of this Court in State of Madras v. Gannon Dunkerley Co. (Madras) Ltd. [1958] 9 S.T.C. 353 (S.C.)., "that, both under the common law and the statute law relating to sale of goods in England and in India, to constitute a transaction of sale there should be an agreement, express or implied, relating to goods to be completed by passing of title in those goods. It is of the essence of this concept that both the agreement and the sale should relate to the same subject-matter......on the true interpretation of the expression 'sale of goods' there must be an agreement between the parties for the sale of the very goods in which eventually property passes". Bearing in mind the above legal concept of the sale of goods we will have to consider whether the terms of the contract, which we have set out earlier, can be construed in favour of a contract for sale of the railway coaches, which were constructed by the respondent. Mr. Desai is right when he submits that the word "contractor" appearing in the preamble is not decisive on the question. As we have stated earlier, the entire document with all the relevant and material clauses throwing light upo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e (17)]. (19) Right of inspection of the work by railway at all times and of maintenance of control over standard of workmanship requiring rectification of work and replacement of materials when ordered [clause (18)]. (20) No sub-letting of contract wholly or in part without the previous written consent of the Chief Mechanical Engineer [clause (19)]. (21) Authority to terminate contract by one month's notice in the event of the contractor's lack of diligence, competence and expedition in executing contractual duties [clause (20)]. (22) Any losses incurred by railway and occasioned through failure of contractor to comply with contractual obligations will be deducted from security deposit [clause (20)]. (23) Contract to be in force for 16 months unless extended on reasonable ground subject to waiver of loss or damage by railway [clause (21)]. (24) Contractor's liability for damages for failure to execute the work with diligence and expedition or to comply with orders of railway administration [clause (22)]. (25) Bills to be submitted by contractor on the basis of certified completion in terms of coaches completed and handed over to the District Mechanical Engineer [clau ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... upplied men and materials although the substantial portion is of the contractor. This goes to bring out the intention of the parties in that they were intent upon performance of the work, the manner of the work, the quality of the materials used in the work and upon completion of the work in the most efficient way resulting ultimately in a completed coach. The intention of the parties at the time of entering upon the contract was not to transfer any completed railway coach by the contractor to the railway. The end-product, being the railway coach, is the result of work, labour and materials of the contractor as well as of the railway as also of the latter's constant supervision and control. From the totality of the material terms and conditions in the agreement, set out above, it is not possible to hold that the parties intend that the contractor transfers the property in the railway coach to the railway after its completion. The essence of the contract or the reality of the transaction as a whole indicates that the contract is a contract for work and labour. Mr. Desai submits that clauses (15), (17) and (23) in particular make it absolutely clear that the property in a unit, i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ts have to be carried out immediately. Unless a close inspection of the work is carried out from day to day, it may be difficult to rectify defects after the work progresses. All this would go to show that the predominant element in the contract is the work and labour aspect and supply of materials is only accessory although the materials were definitely necessary for execution of the work. There is yet another important clause, which throws a flood of light on this issue. Clause (25) deals with the contractor's insolvency or death. It is agreed between the parties, as per clause (25), that if the contractor dies, his legal representatives shall have no interest whatsoever in this agreement save in respect of a claim for the money due for the work already done under the contract and for the return of the security deposit subject to other provisions. This would also clearly show that the contract is a works contract and unfinished work would become the property of the railway and the legal representatives will be entitled only to claim for the value of the work done. There is no provision in the agreement in that event for handing over of the unfinished railway coach by the responde ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he property in the bus body passed to the customer. There was nothing to prevent the assessees from removing a plank, or other material after fixing it to a chassis and using it for a different purpose or for a different bus body." This court in several decisions quoted with approval the following passage from Halsbury's Laws of England, Third Edition, Volume 34, at page 6, with regard to the distinction between a contract of sale and a contract for work and labour: "A contract of sale of goods must be distinguished from a contract for work and labour. The distinction is often a fine one. A contract of sale is a contract whose main object is the transfer of the property in, and the delivery of the possession of, a chattel as a chattel to the buyer. Where the main object of work undertaken by the payee of the price is not the transfer of a chattel qua chattel, the contract is one for work and labour. The test is whether or not the work and labour bestowed end in anything that can properly become the subject of sale; neither the ownership of the materials, nor the value of the skill and labour as compared with the value of the materials, is conclusive, although such matters may b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ownership is said to have vested in the railway. In the present case also, substantially the same result follows. The agreement here shows that when the contractor dies, his legal representatives or assignees have no interest in the contract, which terminates, and they will be only paid for the value of the work done. This would mean the property constructed up to that point was impliedly agreed upon to be vested in the railway as and when materials were worked into the chassis. This is the implication of the agreement and not merely on the theory of accretion. At any rate the passing of the property in this case is ancillary to the primary contract for execution of the work. In State of Madras v. Richardson Cruddas Ltd.[1968] 21 S.T.C. 245 (S.C.)., this court was dealing with a contract for fabrication and installation of steel structures for a sugar factory in the State of Mysore. In the course of the judgment this court observed as follows: "It had, therefore, to be established that the consideration was received under a contract to sell specific goods for a price, and property in the goods contracted to be sold passed to the society, when the goods were delivered in pursu ..... X X X X Extracts X X X X X X X X Extracts X X X X
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