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TMI Blog1965 (10) TMI 52X X X X Extracts X X X X X X X X Extracts X X X X ..... 21 was to be paid for the work. The contract also contained the following terms which the parties added in ink to the printed terms, namely, "The body is to be prepared and delivered on or before 25th August, 1962." It also provided that over and above the said sum of Rs. 3,021, it was the customer who had to pay for the "chanda" (mirror) and charges for painting, presumably such things as "public carrier", etc. On 31st August, 1962, the assessees prepared two bills, one for the amount of Rs. 1,900 in respect of the materials used for building the body and another for Rs. 1,245, being labour charges. On 26th October, 1963, the applicants applied to the Deputy Commissioner for determining whether the proceeds under the aforesaid two bills were liable to sales tax. The contention of the applicants was that the contract was a contract of work and labour and not a contract of sale of goods. It was alternatively contended that the contract was a composite contract consisting of two distinct agreements, one for the sale of the materials used in the construction of the body and the other for the work done and, therefore, the amount of Rs. 1,245, being the proceeds for work and labour done ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y was completed, the customer would ordinarily have to bear the loss, but that consequence was saved in the instant case because the customer was to pay a lump sum for the entire work and the applicants therefore could not demand the price or part of the price before the work was finished and the body was completed and delivered. On the other hand, the learned Assistant Government Pleader contended that the contract was clearly a contract of sale of the body, that the contract indicated clearly that it was upon the completion of the body and its delivery that the customer would be liable to pay the aforesaid amount of Rs. 3,021, and that it was only when delivery of the completed body was made that the property in it would pass to the customer. In order to appreciate these contentions, it is necessary to bear in mind the difference between a contract for work and labour as distinct from a contract of sale of goods. As stated in Halsbury's Laws of England, Third Edition, Volume 34, page 6, the distinction between the two is of ten 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 to t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ork and labour. He observed that it was not possible to view the contract as a contract whose main object was transfer of property in and delivery of possession of a chattel as a chattel to the railway. The learned Chief justice negatived the contention advanced on behalf of the revenue that what was intended by the parties under the contract was the sale of railway bogies as bogies and stated that what the contractors undertook under the contract was to build and erect the coaches on the underframes supplied by the Government and to furnish the same. He came to the conclusion that reading the contract as a whole, it was not possible to hold that there was a contract for the supply of any chattel as a chattel under the terms of the agreement between the parties. The question is, can that be said in the present case? In Patnaik Company v. State of Orissa[1965] 16 S.T.C. 364., a case somewhat similar to the one before us, the agreement between the assessees and the State of Orissa named the assessees as body-builders. The State accepted the quotations offered by the assessees and decided to place orders for the construction of four bus bodies on the chassis supplied by the State. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... what does that pass in? Is it movable property or immovable property? It will not be denied that the property passes in movable property. Then was this the very goods contracted for? Here again the answer is plainly in the affirmative." It is clear that the conclusion that the contract in question was one of sale of goods was arrived at on the footing that the intention of the parties, when they entered into the contract, was that the assessees were to sell the bodies of the buses after completing them and that was indicated from the fact that property in those goods was not to pass to the State until they were completed and delivered. Similarly, in McKenzies Ltd. v. The State of Maharashtra[1965] 16 S.T.C. 518., where also the facts were somewhat analogous to the facts before us, the Supreme Court came to the same conclusion, namely, that the contract was one of sale of goods. The appellants, Messrs. McKenzies Ltd. were engaged in the business of body building on motor chassis. They entered into a contract for the construction of 218 bodies with the Government of India. The price agreed upon was Rs. 1,730 per body. In pursuance of the contract, the appellants presented a bill f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ract or, in the alternative, a composite contract of sale of materials and of work and labour. At the top of the contract it has been clearly stated that what follows therein were the specifications for building the body of the truck, that is to say, in what manner and with what materials the body was to be constructed. What are called specifications in the contract, therefore, are not an indication that the contract was a contract for work and labour or a composite contract for the sale of materials and for work and labour. The term in the contract which is significant is the last one which, as we have already stated, was added by the parties to the printed terms, namely, that the body was to be prepared and delivered to the customer by 25th August, 1962. In our view, the Tribunal has rightly emphasized this condition. Besides this term, the contract also provides for the payment of a lump sum of Rs. 3,021 as consideration for the supply of the body. The contract thus makes it clear (1) that the work to be done was the making of the body as a unit though various things and gadgets had to be attached and fixed to the body, and (2) that the sum of Rs. 3,021 was to be paid to the app ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng up of that amount in two bills would be hardly relevant because by dividing that amount or making out two bills they would not be able to change the nature of the contract. Mr. Nanavati drew our attention, however, to a decision of the High Court of Mysore in Shankar Vittal Motor Co. Ltd. v. The State of Mysore[1964] 15 S.T.C. 771. and relied upon that decision as an authority for construing a contract, such as the one before us, as a contract not for sale of goods but for work and labour. In that case, the assessee, a bus transport operator, owned an automobile workshop wherein he constructed bodies of buses, lorries and vans over the chassis supplied by customers for a fixed and stated amount in one lump sum. The assessee used his own materials, skill and labour to construct the bodies and the parties, after constructing, took delivery of the vehicles and paid the agreed amount. The assessee did not sell readymade bodies but built the bodies piece by piece and part by part on the chassis supplied by the customers. The High Court held that the transaction did not amount to sale of goods but was a contract for work and labour and therefore the turnover relating to the transact ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , then it was sale of goods, but if the work was done on customer's chattel then it was works contract. With very great respect, the proposition laid down here would be contrary to the decision of the Supreme Court in Patnaik Company's case[1965] 16 S.T.C. 364. and also in the case of McKenzies Ltd.[1965] 16 S.T.C. 518. for in both the cases the chassis belonged to the customers and yet, considering the terms of the contract, the Supreme Court came to the conclusion that the contract was a contract of sale of goods notwithstanding the chassis being of the ownership of the customers. It is possible, however, to say that the contract before the Mysore High Court was one of work and labour, for the terms in that contract were entirely different from the terms of the contract before us or the contracts in the two cases before the Supreme Court. The contract in the Mysore case amongst other things provided that the contractors agreed and legally bound themselves "to perform the work as desired in the annexed Schedule and at rates specified therein". It appears from the facts stated in the decision that unlike the present case, the assessee were to be paid not in lump sum but according ..... X X X X Extracts X X X X X X X X Extracts X X X X
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