9911796707
TMI Blog1964 (4) TMI 100X X X X Extracts X X X X X X X X Extracts X X X X ..... 7 of 1963 is directed against the order of assessment made in respect of the disputed turnover of the petitioner for the assessment year 1958-59. S. T. R. P. No. 58 is directed against the order of assessment on the disputed turnover of the petitioner for the assessment year 1959-60. The petitioner is a bus transport operator at Mangalore. It also deals in motor spare parts and accessories. It owns an automobile repairs workshop at Mangalore, wherein it constructs bodies of buses, lorries, vans etc., for agreed price, over the chassis supplied by its customers. Its "turnover" for the assessment year 1958-59 in respect of its body building transactions was Rs. 45,900 and Rs. 53,330 for the assessment year 1959-60. According to the Revenue, the assessee is liable to pay sales tax in respect of the "turnovers" in question. But, according to the assessee, the "turnovers" in question are not exigible to tax as they relate to "works contract". 4.. In respect of the above S. T. R. Ps. the following are the facts found by the Tribunal. The owners of chassis used to bring them to the petitioner's factory and place orders for construction of bodies on them of the types they want; the petit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rieved by the order of the Commissioner of Commercial Taxes, the assessee has come up in appeal to this Court in S. T. A. Nos. 1 to 3 of 1964. 8.. The appellant in S. T. A. Nos. 1 to 3 of 1964 also did not supply any ready-made body to its customers. In these cases also the bodies were built on chassis supplied by the customers part by part and piece by piece. 9.. The appellant has produced the agreement entered into by it with the General Manager, Mysore Government Road Transport Department, Bangalore. Following are the material terms of the agreement: "1. The contractors hereby agree and legally bind themselves to perform the work, as desired in the annexed schedule and at rates specified therein. * * * * 3.. The materials to be used by the contractors shall be of superior quality and strictly conform to the tender specification to the reasonable standard of buses usually built by other garages. * * * * 5.. The contractors shall not be entitled to claim any sort of concession whatever on account of the rise in prices of raw materials or cost of labour due to whatsoever causes during the contract period. * * * * 7.. The contractors shall make good to Government a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the property of the customer as and when fabricated to the chassis; neither the work and labour expended by the appellant nor the materials used by it ended in bringing up any movable chattel for sale; therefore, there was no sale of goods to attract sales tax. 11.. "Contract of sale" must be distinguished from "contract for work and labour"; the distinction is brought out in Halsbury's Laws of England by Lord Simonds, (Third Edition, Vol. 34, at page 6) thus: " 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 prices is not the transfer of 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 be taken into consideration in determining, in the circumstances of a particular case, whether the contract is in substance one for ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r the performance of work such a contract does not thereby become a contract of sale. 3.. Accordingly (i) where the employer delivers to a workman either all or the principal materials of a chattel on which the workman agrees to do work, there is a bailment by the employer, and a contract for work and labour, or for work, labour and materials (as the case may be), by the workman. Materials added by the workman, on being affixed to or blended with the employer's materials, thereupon vest in the employer by accession, and not under any contract of sale. (ii) Where the workman supplies either all or the principal materials, the contract is a contract for sale of the completed chattel, and any materials supplied by the employer when added to the workman's materials vest in the workman by accession. 4. The fact that the value of the materials supplied by one of the parties exceeds the value of the materials supplied by the other does not conclusively prove that the more valuable are the principal materials." The above passage summarises the law in England. Therefore it is unnecessary to refer to the decisions of the English Courts cited at the Bar. 13.. Now turning our a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... List II of the Seventh Schedule of the Constitution. That entry empowers the State Legislature to enact laws in respect of taxes on the sale or purchase of goods other than newspapers subject to the provisions of Entry 92A of List I. Therefore, the State can only levy tax on the "sale" or "purchase" of goods and not on wages received for labour or remuneration paid for service. This position is put beyond controversy by the decision of the Supreme Court in State of Madras v. Gannon Dunkerley Co. (Madras) Ltd.[1958] 9 S.T.C. 353. The Supreme Court reiterated its view in Carl Still G. m. b. H. Another v. The State of Bihar and Others[1961] 12 S.T.C. 449. It is surprising that despite these decisions the definitions of "sale" and "turnover" in the "Act" remain as they were and the "Act" still carries the definition of "works contract" for no purpose. Quite clearly, there is some dead wood in the "Act". To the extent the "Act" purports to reach the turnover relating to "works contract", the same being ultra vires of the powers of the State Legislature must be left out of consideration. 14.. The question for our decision now is, whether the "turnovers" which are in dispute in these ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fixed to the chassis, that plank became the property of the owner of the chassis by accession. So is the case with the nuts and bolts or for that matter any other part that may have gone into the building of the body. This Court in State of Mysore v. A. C. Made Gowda[1961] Mys. L.J. 218. brought out the distinction between "sale of goods" and "works contract" thus: " The true rule is that if the work and labour is of the essence of the contract it is a contract of work. If on the contrary the substance of the contract is the production of something to be sold to the customer, it is a contract for sale of goods." If the essence of the contract is to improve the customer's goods, as is the case in the cases before us, the fact, that in so improving the goods the contractor or the employee not merely uses his labour but also his materials, does not convert the transaction into a "sale". Is is essentially a "works contract". The materials used become accretions or additions to the principal chattel and they vest by accession in the owner of the chattel. 18.. This Court laid down in H. Thammiah v. State of Mysore [1962] Mys. L.J. 551. that one of the tests to find whether a given ca ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o the Court was concerned with an agreement relating to building of bodies on the chassis supplied to the assessee by its customers. On the facts of that case the Court came to the conclusion that the transactions entered into by the assessee amounted to sale of goods. The facts found in that case were that the assessee had entered into a contract for the construction of 218 bodies with the Government of India; under that contract the bodies were agreed to be supplied at the rate of Rs. 1,730 per body. Relevant portion of that decision reads thus: "Now the contract in the present case is that the applicants by their tender contracted to construct and deliver to the Government of India 218 bodies on the dates as specified in the contract. It was agreed under this contract that the applicants will first submit pilot bodies for approval within 45 days from the date of receipt of the accepted tender or chassis, whichever was later, and they would commence delivery of the bodies contracted to be built 45 days after the approval of the pilot bodies." The Court further observed: " It appears, however, on reading the terms of the contract that what was intended between the parties was ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... agreed upon and thereafter the body was fitted on the chassis. This decision is similar to the two decisions referred to hereinbefore. 26.. For the reasons mentioned above, we are of the opinion that the transactions with which we are concerned in these cases do not amount to sale of goods but are contracts for "work and labour". 27.. Yet another contention advanced by Sri V. Krishnamurthy and Sri Swaminathan, the learned counsel for the assessees, is that whether under the general law the transactions in question amount to "works contract" or not, the State Legislature for the purpose of the "Act" having converted those transactions into "works contract" as per section 2(w), "works contracts" as defined are not exigible to sales tax and therefore the assessees are not liable to pay sales tax in respect of the "turnovers" in dispute. This is an ingenious argument. But, on a closer scrutiny it will be found to be devoid of strength. The Legislature has defined "works contract" for the purpose of bringing the "turnover" in respect of it within the net of taxation. The "Act" does not purport to exempt the turnover in respect of "works contract". On the other hand, the "Act" inten ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ars, motor taxi cabs, motor cycles and cycle combinations, motor scooters, motorettes, motor omnibuses, motor vans and motor lorries fall within Entry No. 72 deals with component parts of motor vehicles. Entry No. 73 deals with articles (including rubber and other tyres and tubes and batteries) adapted for use as parts and accessories of motor vehicles, not being such articles as are ordinarily also used for purposes other than as parts or accessories of motor vehicles. Goods falling under Entries 70 to 73 are assessed at 7%. The body of a motor is certainly its component part. Even if we are to consider the articles used for building the body separately, those articles having been adapted for use as parts of the motor vehicles, they fall within Entry No. 73. The planks, angle irons, nuts, bolts, etc. adapted and used in building a body of a motor vehicle cannot be considered as separate articles which are accessories of motor vehicles and which are ordinarily used for purposes other than as parts and accessories of motor vehicles. 30.. Sri Swaminathan, the learned counsel for the appellant in S.T.A. Nos. 1 to 3 of 1964, in support of his contention that the articles used in buildi ..... X X X X Extracts X X X X X X X X Extracts X X X X
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