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TMI Blog1956 (7) TMI 44X X X X Extracts X X X X X X X X Extracts X X X X ..... ay, 1954, has referred the following question of law for the decision of this Court: "Whether in the facts and circumstances of the case it can be held that property in the goods included in Schedule A did pass to the contractors, and the transaction amounted to sale?" In order to decide the above question, it is necessary to know the nature of the transaction, which is the subject-matter of the present controversy. The Corporation on the 24th of May, 1950, entered into an agreement with (1) Hind Construction Ltd., and (2) Patel Engineering Co. Ltd., for the construction of Konar Dam in the Hazaribagh district. This agreement was subsequently modified on the 10th March, 1951, by a supplementary agreement, entered into between the parties as a result of a change in the design of the dam. The original clause (8) of Part II of the agreement of 1950 was substituted by a fresh clause (8) in the supplementary agreement. I may at this stage reproduce the relevant portions of the substituted clause (8) of the supplementary agreement, which have been relied upon by the parties before this Court: "Part II: Special conditions-The Corporation may hire or make available such of its equipment ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rtified by the Consulting Engineer, within a period of 15 days of such declaration being received by the Corporation." "In respect of the machinery which shall have been delivered to the contractor on or before the 31st of December, 1950, their cost shall be recovered from the contractor in eighteen equal installments beginning with January, 1951, and in respect of the remaining items included in this group of machinery, their cost will be recovered from the contractor in eighteen equal installments beginning with July, 1951, provided that these remaining items shall have been delivered to the contractor prior to this last specified date, provided(a) that the total actual price for these equipments, which has been provisionally estimated at Rs. 42,63,305 will be chargeable to the contractor as per first para of clause 8 above; (b) that after approximately two thirds of the total cost or an amount of Rs. 28,43,000 (Rupees twenty-eight lakhs forty-three thousand) approximately has been recovered from the contractor on account of these equipments the Corporation will consider the date or dates when it could take over the equipments still under use by the contractor, assess the exten ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the removal of such item or items is not likely to impede the satisfactory prosecution of the work. Similarly no item of equipment or material belonging to the contractor but towards the cost of which money has been advanced by the Corporation, shall at any time be removed from the work site under any circumstances until the amount of money so advanced has been recovered from the contractor by the Corporation and thereafter if in the opinion of the Consulting Engineer the removal of such item or items is not likely to impede the satisfactory prosecution of the work. (d) The Corporation shall supply to the contractor whatever spares have been procured or ordered for the equipment already supplied or to be supplied by the Corporation to the contractor under the terms of this agreement and thereafter the replenishment of the stock or spares shall be entirely the responsibility of the contractor who shall therefore take active steps in time to procure fresh spares so as to maintain a sufficient reserve. The spares to be supplied by the Corporation will be issued to the contractor by the Executive Engineer, Konar, as and when required by the contractor against indent accompanied by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ncluding a transfer of property in goods involved in the execution of contract but does not include a mortgage, hypothecation, charge or pledge: Provided that a transfer of goods on hire-purchase or other installment system of payment shall, notwithstanding the fact that the seller retains a title to any goods as security for payment of the price, be deemed to be a sale: Provided further.........................." Mr. Kanhaiyaji, appearing for the assessee, has contended that the impugned transaction cannot be treated as a "sale". The machineries supplied to the contractor were neither given on hire-purchase system, nor on other installment system of payment as provided by the proviso to section 2(g) of the Act; but they were only hired to the contractor, and as such, the assessee was not liable to pay any sales tax on the amount of the installments realised by the assessee from the contractor as sale price for the machineries mentioned in Group A. Mr. Lalnarain Sinha, the learned Government Advocate, appearing for the State, has however contended, relying on the proviso to section 2(g) of the Act that the supply of the machineries to the contractor was on a hire-purchase system, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... me of the actual transfer of such goods, (ii) the transfer of the property in the goods is to take place at a future date on the payment of the installments agreed upon, and (iii) the seller retains a title to the goods as security for payment of the price, such a transaction would be deemed to be a "sale" within the meaning of the proviso to section 2(g) of the Act. In the case, relied upon by Mr. Kanhaiyaji, Wadia, J., observed as follows: "There are certain broad principles on the subject which can be deduced from a consideration of all the English and Indian authorities I have referred to above. Firstly, the substance of the agreement must be considered as a whole, not the substance apart from the language used, nor the mere words divorced from the substance, but the substance which must be gathered from the true meaning of the language in which it is sought to be expressed. The true effect of an instrument depends upon the intention of the parties as gathered from the terms and in construing the terms it is the duty of the court to regard the intention rather than the form and to give effect to the whole instrument. Secondly, where the agreement imposes an obligation upon the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... specifically provided that no item of equipment made available by the Corporation shall at any time be removed from the work site under any circumstances until the full cost thereof has been recovered from the contractor by the Corporation, and thereafter, only if in the opinion of the Consulting Engineer the removal of such item or items is not likely to impede the satisfactory prosecution of the work. This clearly indicates that the title in the equipments was to pass to the contractor after the full payment of the total cost which included the actual price of the equipments made available to the contractor. The transaction, therefore, partakes the nature of a hire-purchase system in which the title to the goods transferred passed only on the payment of the entire price of the equipments. If the equipments had been hired or lent to the contractor on terms of hiring, there would have been terms of hiring to be mutually agreed upon, as contemplated by the first part of the agreement of clause (viii) but no such agreement was produced at any stage. On the other hand, the agreement specifically provides that the contractor was liable to pay the total actual price of these equipments. ..... X X X X Extracts X X X X X X X X Extracts X X X X
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