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TMI Blog1960 (9) TMI 89X X X X Extracts X X X X X X X X Extracts X X X X ..... ent of sales tax for the period from 1st September, 1956, to 31st August, 1957. He relied on the decision of a Division Bench of this Court in Jaikishan Gopikishan v. Commissioner of Sales Tax(1), where it was held with reference to the Madhya Bharat Sales Tax Act, 1950, that the owner of a ginning and pressing factory carrying on the business of baling and pressing cotton supplied by the customers and of delivering the pressed cotton in the form of bales covered with hessian cloth and secured by iron hoops, and making a consolidated charge for the pressing as well as packing was liable to pay sales tax on the value of hessian and iron hoops used in the baling process as these materials were goods and there was a sale in regard to them when the assessee transferred the property in those goods to the customers for consideration. The Sales Tax Officer determined the value of hessian cloth and iron hoops by adding ten per cent. as "reasonable margin profit" to the price paid by the assessee for the purchase of hessian and hoops. He found the purchase price paid by the assessee as Rs. 38,736 and after making the ten per cent. addition determined the sale price of hessian and hoops used ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... here was an agreement between the petitioner and the customer with regard to the sale of iron hoops and hessian cloth it could not be held that there was a sale of this material used in the baling process: and that the passing of property in iron hoops and hessian cloth was merely ancillary to the contract for performance of work. While opposing the petition, learned Advocate-General said that if the applicant was in any way aggrieved by the assessment order he had an alternative remedy by way of an appeal and revision under sections 22 and 22-A of the Act; that the petitioner had in fact filed an appeal against the assessment order which was pending; that even if it be held that the applicant was liable to pay sales tax on hessian and iron hoops only if there was a contract for the sale of this material, it would be open to the Department to urge before the appellate authority that inasmuch as the Sales Tax Officer decided the matter solely on the basis of Jaikishan Gopikishan v. Commissioner of Sales Tax(1) and on the circumstance of a consolidated charge without making any investigation into the question of fact about the existence of an agreement for the sale and purchase of he ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of selling the goods, and that the Legislature cannot in the purported exercise of its power to tax sales, tax transactions which are not sales by merely enacting that they shall be deemed to be sales. Accordingly the Supreme Court held that the provisions of the Madras Act, so far as they purported to tax works contract on the basis of a notional sale, were ultra vires. It must be remembered that the Supreme Court only negatived the power of the State to tax a works contract as such. That the levy of sales tax on a works contract, if it includes sale of goods, would be proper, is clear from several passages in the judgment of the Supreme Court in State of Madras v. Gannon Dunkerley and Co.[1938] 9 S.T.C. 353; A.I.R. 1958 S.C. 560. The works contract considered by the Supreme Court related to the construction of a building and the question was whether the value of certain material used by the assessee in the execution of the building contract was liable to sales tax on the basis that the material was sold by the assessee to the party who had employed the contractor for the construction of a building on his own land. The agreement between the parties in the case before the Supreme ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the materials used in the construction nor does the property pass therein as movables, and that therefore, it is impossible to maintain that there is implicit in a building contract a sale of materials as understood in law. The building contract in the case before the Supreme Court was regarded as single and indivisible. On the question of the splitting up of a building contract, the Supreme Court said: "Another difficulty in the way of accepting the contention of the appellant as to splitting up a building contract is that the property in materials used therein does not pass to the other party to the contract as movable property. It would so pass if that was the agreement between the parties. But if there was no such agreement and the contract was only to construct a building, then the materials used therein would become the property of the other party to the contract only on the theory of accretion. The position is thus stated by Blackburn, J., in Appleby v. Myres[1867] 2 C.P. 651, at pp. 659-660.: "It is quite true that materials worked by one into the property of another become part of that property. This is equally true, whether it be fixed or movable property. Bricks buil ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... there might be contracts which might consist of two distinct agreements, one for the sale of materials and another for work and labour, and that in such a case, it would be competent to the State to impose tax on the sale of materials even construing that word in its narrow sense, and that these are matters which must be left to be investigated by the appropriate authorities. That undoubtedly is the correct legal position as observed in Civil Appeal No. 210 of 1956, State of Madras v. Gannon Dunkerley and Co. [1958] 9 S.T.C. 353; A.I.R. 1958 S.C. 560., and accordingly, when a question arises as to whether a particular works contract could be charged to sales tax, it will be for the authorities under the Act to determine whether the agreement in question is, on its true construction, a combination of an agreement to sell and an agreement to work, and if they come to the conclusion that such is its character, then it will be open to them to proceed against that part of it which is a contract for the sale of goods, and impose tax thereon." The principles laid down in State of Madras v. Gannon Dunkerley and Co. [1958] 9 S.T.C. 353; A.I.R. 1958 S.C. 560. were followed in the case of Ba ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed as sold separation and assessed to sales tax. 10.. The decision in Jaikishan Gopikishan v. Commissioner of Sales Tax[1957] 8 S.T.C. 286. was not with reference to any building contract. It related to a contract for the pressing of cotton supplied by the customers and delivery of the pressed cotton in bales covered with gunny cloth and secured by iron hoops. The ginning and pressing factory charged to its constituents a consolidated rate for pressing as well as for the iron hoops and hessian coverings. Now, so far as the supply of cotton by the customer to the ginning and pressing factory for being pressed and the delivery of the pressed cotton to the customer was concerned, there was only a bailment and not a transfer of property for value. The cotton belonged to the customer and was delivered to him in a pressed form. The "pressing part" of the contract was one of execution of work on the cotton. The hessian cloth and iron hoops which were used for packing were not in any way materials "worked into" the cotton and there was no question of iron hoops and hessian cloth vesting by accession in the owner of the cotton. The packing material remained extraneous. It must be remember ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the material. In Jaikishan Gopikishan v. Commissioner of Sales Tax [1957] 8 S.T.C. 286., it was not disputed that the assessee pressing factory there acquired property in the packing materials when it purchased them for using in the baling process and that the property in the hessian cloth and the iron hoops was transferred to the customers when the bales covered with hessian cloth and secured by iron hoops were delivered to them on payment of a consolidated charge. All the conditions laid down by Supreme Court in State of Madras v. Gannon Dunkerley Co.[1958] 9 S.T.C. 353; A.I.R. 1958 S.C. 560., for sale of goods were thus satisfied and consequently the conclusion in the case of Jaikishan Gopikishan v. Commissioner of Sales Tax[1957] 8 S.T.C. 286., that the assessee was liable to pay sales tax on the value of hessian cloth and iron hoops supplied by it to its customers was in accord with the decision of the Supreme Court. 12.. It is erroneous to suppose that the conclusion in Jaikishan Gopikishan v. Commissioner of Sales Tax[1957] 8 S.T.C. 286. rested solely on Banarsi Das v. State of Madhya Pradesh[1955] 6 S.T.C. 93. and Babulal v. D.P. Dube [1955] 6 S.T.C. 255. A reference to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rvice or of sale of any goods and it was wrongly held that there was a sale of the packing material merely by reason that the property in the material was transferred for consideration. Here, as has been pointed out earlier, the substance of the packing part of the contract is the material used and not the labour that has to be exercised in packing. In Chidambara Nadar Sons and Co. v. State of Madras [1960] 11 S.T.C. 321., the decisions in Varasuki and Co. v. Province of Madras[1951] 2 S.T.C. 1. and Indian Leaf Tobacco Development Co., Ltd. v. State of Madras[1954] 5 S.T.C. 354., have been held to be in no way contradictory to the principles laid down by the Supreme Court in State of Madras v. Gannon Dunkerley and Co.[1958] 9 S.T.C. 353; A.I.R. 1958 S.C. 560., inasmuch as in those cases there was an agreement to purchase goods to be delivered by the seller to the buyer and it was implicit in the contract that the goods would be delivered as packed and thus there was a sale of the packing material. In the present case though there is no sale of the pressed cotton, there is an implied contract for the sale of the packing materials as such. 14. For these reasons we are of the opin ..... X X X X Extracts X X X X X X X X Extracts X X X X
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