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TMI Blog1964 (11) TMI 80X X X X Extracts X X X X X X X X Extracts X X X X ..... d delivered the sari pieces to embroidery workers who were to be paid piece rates according to the work done by them. The jari materials were supplied by the applicants to those workers and after the embroidery work was completed, the saris were returned to Messrs Pacific Traders. The cost of the jari materials used in the embroidery work came to about thirty per cent. of the total charges charged by the applicants. The applicants thereafter sent one consolidated bill to Pacific Traders for the entire work done by them also showing the rates per sari. In their application to the Deputy Commissioner dated 17th February, 1958, the applicants stated that they were engaged in carrying out embroidery work and that in the course of that business, they used to receive saris from customers who used to give specific instructions with regard to the designs they wished to be exhibited on the saris. The agreement used to be oral and the charges payable to them also used to be determined orally. They also stated that the remuneration payable to them under such contracts would be supported by bills issued by them to their customers which bills they used to record in their books of account. The m ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the said application was made. The details of the cost of the work involved in embroidering these sixty-six saris were produced before the Deputy Commissioner, presumably to enable him to appreciate the type of work executed by the applicants, but they were not intended to represent the actual bill sent to the customers. The actual bill sent to the customers was a consolidated bill No. 94 dated 6th February, 1958, which was one bill for a total amount of Rs. 258 and which consisted of different charges per sari according to the three designs required by the customer. On these materials, the Deputy Commissioner, by his order dated 30th January, 1962, held that the intention of the parties in entering into the contract was to transfer for a price the property in the jari materials in which the customer had previously no property and that, therefore, the contract was a contract of sale of jari materials. "When the customer handed over to the applicant the saris for embroidery work he must have known that the applicant would undoubtedly charge him for the jari goods to be used therein. This is, therefore, obviously a case involving the sale of jari goods. It cannot be denied that the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uestion that is referred to us for our opinion is: "Whether on the facts and in the circumstances of the case the agreement with Messrs Pacific Traders was works contract or it was a composite agreement, one for the sale of jari materials and another for doing work?" The contention of Mr. Mody was that the contract between the parties was one and indivisible, that the intention of the parties was not that the applicants should sell jari materials to the customer and that the property in the jari materials necessary to execute the embroidery work passed to the customer as accretion. Mr. Mody argued that it was only when these materials were stitched to the saris that property in those materials passed to the customer. The work to be executed by the applicants was one and integral, namely, to execute embroidery work on the sari cloth supplied by the customer, and to use during that work such embroidery materials as were necessary for the execution of the work. He contended that this was clear from the fact that the workmen engaged by the applicants were to be supplied by the applicants embroidery materials on an estimate of the quantum of such materials necessary for each design an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... would be chargeable to sales tax on the sales of these materials. The distinction between a contract for work and labour and a contract of sale is often a fine one, but the distinction is clear and ascertainable. Whereas a contract of sale is one of which the primary object is the transfer of property in and the delivery of possession of a chattel as a chattel to the buyer, the primary and essential object of a contract of work undertaken by the payee of the price is not the transfer of a chattel qua chattel. The test is, whether or not the work and labour bestowed result in anything that can properly become a subject of sale and neither the ownership of the materials nor the value of the skill and labour as compared with the value of the materials would be conclusive, although such matters can be taken into consideration while determining whether the contract is in substance one for work and labour or one for the sale of a chattel. In every case, therefore, the court has to address itself the question as to what is the main object and essence of the contract. The clearest case of a contract of work and labour is to be found in Robinson v. Graves[1935] 1 K.B. 579., where the quest ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d that as a result of the transaction property must actually pass in the goods. Unless all these elements were present, there could be no sale. Thus, if merely title to the goods passed but not as a result of any contract between the parties, express or implied, there would be no sale. So also if the consideration for the transfer was not money but other valuable consideration, it might then be exchange or barter but not a sale. And if, under the contract of sale, title to the goods had not passed, then there would be a mere agreement to sell and not a completed sale. There must be therefore an agreement between the parties for the sale of the very goods in which eventually property passes. The Supreme Court also held that in the case of a building contract, the property in materials used did 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. To constitute a sale, therefore, it is necessary that t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ting motor vehicles. It also dealt in motor parts and accessories and maintained a workshop where reconditioning or repairs of motor vehicles were undertaken. The turnover in the business of the company, therefore, related to the sales department where goods were sold and also to the works department where the vehicles were repaired or reconditioned. In the latter case, the turnover represented not only the labour charges as such, but also the cost of spare parts or materials supplied or used in effecting the repairs. There was no controversy with regard to the turnover in the sale department, but the question arose as regards the turnover in the works department. For the assessment year 1949-50, which was taken in that case as typical one, the Deputy Commercial Tax Officer assessed the turnover of the company in the total amount of Rs. 42,13,684 out of which he allocated a sum of Rs. 2,63,462 as turnover in respect of works contracts referable to repairs of motor vehicles in the workshop. Out of the latter amount, he held that a sum of Rs. 2,16,548 should be treated as turnover in respect of works contracts, and levied a tax on seventy per cent. thereof as representing the sales o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d to him by his customers could not be assessed to sales tax inasmuch as such contracts did not include the sale of any goods of the assessee to the customers. Another decision which might be usefully referred to is United Bleachers Ltd. v. The State of Madras[1960] 11 S.T.C. 278. This case related to a contract of bleaching grey cloth which also involved packing of the goods after the bleaching was done, and the question which arose was whether in such a case there could be said to be an implied sale of the packing materials. Rajagopalan and Ramachandra Iyer, JJ., again emphasized that in such a case, in order that there could be a levy of sales tax, there should be a sale and that mere passing of title in the goods, which was not as a result of any contract between the parties to sell either express or implied, could not amount to a sale. Whether in regard to packing materials utilised in the performance of a contract between the parties there was a sale, would depend on the agreement between the parties. Such an agreement could be express or implied. Where the main contract was one of sale of goods as packed, such an agreement to sell the packing materials could, having regard ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 1] 12 S.T.C. 668., where, on the footing that the contract of work of redrying tobacco, its storage for the requisite period and packing such redried tobacco was one and integral with procedure of redrying, it was held that an agreement of sale of packing materials could not be implied. Though the test suggested there might not appear to be a determinative test, for that would equally apply even to a pure works contract, the decision really turns on the footing that the contract was a service contract, was one and indivisible and the supply of packing materials was ancillary to the contract of work and service. Thus, the principles that emerge from these decisions are: (1) that the question whether a contract in question is for work and labour or is a composite one, depends upon the intention of the parties and whether there is an agreement, express or implied, of sale of materials used in producing the article in question, and (2) that mere passing of property in the materials used is not enough unless the passing of such property takes place as a result of an agreement for sale. The learned Advocate-General, however, relied upon the unreported judgment of the High Court of Bom ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... also to be viewed in its proper context to ascertain whether the contract was one purely for sale or a composite contract for sale and for performance of service or a contract entirely for service. They, however, emphasized that though these would be important indications, the real test was one of intention of the parties and a conclusion as to such intention could only be reached from all the facts and circumstances of the case. The other decision referred to by the learned Advocate-General was also an unreported decision of the High Court of Bombay in Special Civil Application No. 296 of 1957, Gajadhar Hiralal Ginning and Pressing Factory, Akola v. The Sales Tax Officer, decided on 16th January, 1958, by Chainani, J., as he then was, and Badkas, J. In that case, the Sales Tax Officer started assessment proceedings against the petitioner on the ground that the petitioner was a dealer within the meaning of the Central Provinces and Berar Sales Tax Act and that the business of the petitioner was to supply hessian and hoops to customers while executing the contract of pressing bales. The stand taken by the department was that the turnover of the petitioner in respect of the supply ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... arashtra in Babulal Onkarmal Co. v. State of Bombay[1964] 15 S.T.C. 598. We agree, with great respect, with the learned Judges there that every contract of service need not always be one and indivisible and that the question whether it is so or not depends upon the facts and circumstances of each case. The question, therefore, is whether the contract of work of embroidering saris in the present case is a purely work and service contract or whether it is a composite contract. As already stated, the burden of proof that it is such a composite contract is upon the revenue. On the facts of the present case, there can be no doubt that the customer entered into the contract to have the work of embroidery done by or through the applicants. Since the customer supplied only the takes and not the embroidery materials, the contract being one to superimpose on the sari pieces embroidery work with jari materials, both the parties must be presumed to know beforehand that when the saris would be returned duly embroidered, there would be incorporated in them not only the work of embroidery but also in addition the materials, that is to say, jari materials, thread, etc., and that on the return of t ..... X X X X Extracts X X X X X X X X Extracts X X X X
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