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TMI Blog1984 (1) TMI 278X X X X Extracts X X X X X X X X Extracts X X X X ..... Canal Project, III Desert Division, Suratgarh, inviting sealed tenders on prescribed forms from experienced kiln contractors, for the manufacture and supply of 256 lacs pucca tiles and 55 lacs pucca bricks at Suratgarh for the use in the construction of the Rajasthan canal, within the specified time. The assessee's tender was found to be lowest and after approval by the Chief Engineer, Rajasthan Canal Project, the Executive Engineer informed the assessee-firm that its tender for manufacture and supply of bricks and tiles at Suratgarh was accepted and the assessee was directed to start work immediately. An agreement was also entered into between the assessee-firm on the one part and the Executive Engineer, on behalf of the Governor of the State of Rajasthan on the other part. The coal and slack coal was agreed to be supplied to the contractor by the State Government and the price thereof was also agreed to be adjusted from the running bills. The department also agreed to supply water to the contractor from the canal for use in the manufacture of bricks and tiles on payment of nominal price. We shall presently refer to the relevant terms and conditions of the contract. After the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 72, held that a question of law does arise out of the order of the Board of Revenue dated 19th June, 1970, and the Board was directed to state the case and refer the aforementioned question to this Court for its answer. Now, a dealer, whose turnover in the previous year in respect of sales or supply of good exceeds the specified limit, is liable to pay tax under the Sales Tax Act on his taxable turnover. The expression "dealer" has been defined in section 2(f) of the Act as under: "(f) 'dealer' means any person who carries on the business of buying, selling, supplying or distributing goods, directly or otherwise, whether for cash, or for deferred payment, or for commission, remuneration or other valuable consideration and includes- (i) a local authority, a company, an undivided Hindu family or any society (including a co-operative society), club, firm or association which carries on such business; (ii) a society including a co-operative society, club, firm or association which buys goods from, sells, supplies or distributes goods to its members; (iii) a commission agent, a broker, a del credere agent, an auctioneer or any other mercantile agent, by whatever name called, w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... accounts. Clause (2) of the contract provided that the land required by the contractor for the site of brick kiln, sheds and like purpose would be provided rent-free by the Government. The Executive Engineer would select the land. The contractor was to make his own arrangements for water supply, but in case water was supplied to him from irrigation channel and the Government agreed to supply the same, then for the water thus supplied to the contractor lie would be charged 50 paise per thousand bricks and tiles moulded. The bricks and tiles, which shall be supplied by the contractor, shall be of good quality, pucca, thoroughly and equally burnt, regular and uniform in shape and of specified size. The contractor was to prepare his own moulds of bricks and tiles. Clause (4) of the agreement provided that the quantity of slack coal issued to the contractor, if not utilised by him for the specific purpose for which it was issued, as stipulated in the agreement, would be returned by him or the contractor would make payment of the cost of such coal at double the rate at which the coal was supplied to him. The slack coal supplied by the State Government to the contractor would be made a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he property therein is to pass, is not a contract of sale, but a contract for work, labour and materials, for the contract does not contemplate the delivery of a chattel as such. 2.. When a chattel is to be made and ultimately delivered by a workman to his employer, the question whether the contract is one of sale or of a bailment for work to be done depends upon whether previous to the completion of the chattel, the property in its materials was vested chattel, in the workman or in his employer. If the intention and result of the contract is to transfer for a price property in which the transferee had no previous property then the contract is a contract of sale. Where, however, the passing of property is merely ancillary to the contract for 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 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 ble ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... who would suffer, as there is a clear provision in the agreement that any loss or damage occurring to the contractor during the manufacture, on account of any natural calamity such as rain, storm or floods or any other mishap shall be borne by the contractor and no compensation shall be payable in respect thereof by the State Government. In Chandra Bhan Gosain v. State of Orissa [1963] 14 STC 766 (SC), their Lordships of the Supreme Court dealt with a similar case relating to manufacture and supply of bricks at Rourkela in Orissa. It was held in that case that the contract was for sale although the word "sale" was not used in the contract. Their Lordships held that the contract was for supply of material at specified rate, which showed that the contract was for sale of bricks and that it was transfer of property in the bricks for consideration, notwithstanding the fact that the word "sale" was not used. Their Lordships observed as under in the aforesaid case: "Here the intention of the parties in making the contract clearly was that the company would obtain delivery of the bricks to be made by the appellant; it was a contract for the transfer of chattels qua chattels. The es ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y of the opinion that this has taken place in this case. The property in the bricks was entirely of the assessee. He had not only to manufacture them but also to stack them for facilitating delivery. The essence of the contract was, therefore, the delivery of the bricks after manufacture. The present case cannot be distinguished from the decision of Chandra Bhan Gosain's case [1963] 14 STC 766 (SC)." (emphasis added*). The Madras High Court, however, in C. Krishnaswami Rao v. State of Madras [1968] 22 STC 146 distinguished the decision of their Lordships of the Supreme Court in Chandra Bhan Gosain's case [1963] 14 STC 766 (SC) on the ground that the contract in the case before them was differently worded and the inferences made by their Lordships of the Supreme Court in Chandra Bhan Gosain's case [1963] 14 STC 766 (SC) could not be made applicable to the Krishnaswami Rao's case [1968] 22 STC 146. That case was also relating to manufacture and supply of bricks. However, with great respect to the learned judges, we may observe that the distinction which was sought to be drawn from Chandra Bhan Gosain's case [1963] 14 STC 766 (SC) does not appear to us to be so real as to make a dif ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Madras High Court in A.K. Ranganatham Sons (Pvt.) Ltd. v. Government of Tamil Nadu [1973] 32 STC 60 in which their Lordships of the Madras High Court followed Krishnaswami Rao's case [1968] 22 STC 146 and the decision of the Gujarat High Court in S.R.U.K.S. Mandal's case [1972] 29 STC 419. As the decision of the Gujarat High Court in S.R.U.K.S. Mandal's case [1972] 29 STC 419 has been reversed by their Lordships of the Supreme Court, we respectfully submit that the two decisions of the Madras High Court in Krishnaswami Rao's case [1968] 22 STC 146 and Ranganatham's case [1973] 32 STC 60 cannot be considered as good law, in view of the subsequent decision of their Lordships of the Supreme Court in S.R.U.S. Madali's case [1976] 38 STC 203 (SC). The learned counsel for the assessee cited before us some other cases which are not relevant to the present case and are distinguishable. The cases in State of Gujarat v. Kailash Engineering Co. [1967] 19 STC 13 (SC), Commissioner of Commercial Taxes, Mysore, Bangalore v, Hindustan Aeronautics Ltd. [1972] 29 STC 438 (SC) and State of Gujarat (Commissioner of Sales Tax), Ahmedabad v. Variety Body Builders [1976] 38 STC 176 (SC) relate ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... property in it to the railway, therefore, there was no sale involved in the supply of ballast by the contractor to the railway under the contract. The case of Chandra Bhan Gosain [1963] 14 STC 766 was distinguished and it was observed that if it was not of essence that a chattel should be produced and transferred as a chattel, then it may be a contract for work done and not a contract for sale of goods. The decisions of the Supreme Court in the cases of State of Rajasthan v. Man Industrial Corporation Ltd. [1969] 24 STC 349 (SC) and State of Rajasthan v. Nenu Ram [1970] 26 STC 268 (SC) relate to manufacture and fixation of doors and windows and those cases are distinguishable as the contract in those cases was not for manufacture and supply of goods but fixation was an essential part of the contract which involved work and labour. As there were no two separate contracts, one of sale and another of service, but there was a joint contract of manufacture and fixation of window leaves or doors and as such the contract was essentially one for service. Their Lordships of the Supreme Court held in those cases that only on the fixing of the windows or doors, the contract could be fully ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... re and sale of the bus bodies. It was held by their Lordships of the Supreme Court in that case that the question whether the contract is one for execution of work or for performance of service, or is a contract for sale of goods must be decided on the basis of the intention of the parties gathered from a true interpretation of the terms of the contract viewed in the light of the surrounding circumstances. In that case Sikri, J., as he then was, speaking for the majority of the Supreme Court, applied the same test which we have referred to above, namely, that in case a fire took place on the premises before delivery of the goods and the goods are destroyed or spoiled then on whom would the loss fall? It was held by their Lordships of the Supreme Court in that case that till the delivery was made, the bus bodies remained the property of the contractor. In that case, it was further held that a contract for sale of goods to be manufactured did not cease to be a contract for sale of goods, merely because the process of manufacture is supervised by the purchaser. The learned counsel for the assessee referred to some more cases dealing with a contract with a photographer or sculptor, b ..... X X X X Extracts X X X X X X X X Extracts X X X X
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