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TMI Blog1996 (12) TMI 361X X X X Extracts X X X X X X X X Extracts X X X X ..... th the orders of the appellate authority-Deputy Commissioner, the petitioner filed appeals before the Sales Tax Appellate Tribunal. The Tribunal disposed of the appeals filed by the petitioner in respect of different assessment years following its own decision in T.A. No. 566 of 1985 and batch dated 19th July, 1989. In view of the said judgment and following the judgment of this Court in Hindustan Shipyard Ltd. v. Commercial Tax Officer [1970] 1 An WR 197, the Tribunal allowed certain appeals which, according to it, are covered by the ratio of the said judgment and dismissed certain other appeals holding that the said judgment had no application having regard to the terms of the contract in those cases. Challenging the validity of the orders of the Tribunal, the abovesaid revisions are preferred by the petitioner. 3.. Sri P. Ramachandra Reddy, the learned Senior Counsel appearing for the petitioner, submits that the only distinguishing feature relied upon by the Tribunal in dismissing the appeals is the risk and insurance clauses and that similar clauses are found in the contract which is the subject-matter of the judgment of Division Bench in Hindustan Shipyard case [1970] 1 An ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at for the purposes of works contract, the concept of passing of title is alien whereas that is the most important ingredient of sale. We have already observed above that the question whether a transaction is a "sale" or "works contract", has to be determined with reference to relevant clauses of the agreement and this question of fact has to be determined with reference to the facts of each case. We think that the following example will explain the difference between "sale" and "works contract". When we go to purchase a suit, there will be readymade suits, purchase of which would squarely fall within the meaning of "sale". But there can also be a case where the tailor manufactures a suit on what is called "made to measure". For that purpose, the purchaser has to select his own cloth, he may pay the price of the cloth then and there or the price of the cloth may be paid later when the suit is made ready. At the time of delivery of the made to measure suit, the transaction falls within the meaning of the "sale". But when we go to a tailor s shop with our own cloth and get the suit stitched, the contract is one of "works contract". The distinction between second and third category ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ners. The assessing authority treated the transaction as one of "sale", but the petitioner s contention is that it was "works contract" within the meaning of section 2(t) of the Act and therefore not liable to be taxed. The notice issued by the Commercial Tax Officer was challenged by the petitioner before the High Court invoking the jurisdiction under article 226 of the Constitution of India. Following the said judgment of the Supreme Court, in State of Gujarat v. Kailash Engineering Co. (Pvt.) Ltd. [1967] 19 STC 13, the Bench held that what the builders had to do under the contract, was to complete the ship from out of the material belonging to the owners under their supervision according to their requirements. The building skill, the technical know-how and the manual labour were being supplied by the builders. The materials not used for the purposes of contract were to be reverted to and become property of the owner. The Bench further pointed out that the right which the builders had under the agreement over the property in the vessel and its engines, etc., further confirmed that the property in them vested in the owners. The agreement does not therefore deal with the sale of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... would not include sales tax on materials including steel or components. On those terms of the contract, the High Court of Gujarat took the view that the contract was a "works contract" being a contract for the manufacture and sale of wagons to the Union of India by the company. On appeal to the Supreme Court, it was held that the terms and conditions of the contract, read as a whole and indubitably, led to the conclusion that the property in the materials procured or purchased by the company against 90 per cent value which was taken as advance from the Railways, did not before their use in the construction of the wagons pass to the Railways. It was also held that with the exception of a relatively small proportion of the components supplied by the Railways, the entire wagon including the material at the time of its completion for delivery was the property of the company and that as the bulk of the materials used in the construction of the wagons belonged to the company, which sold the wagons for a price, the contract was a contract for the sale of wagons and not a works contract. 11.. In a subsequent decision of this Court in P.S. Company v. State of Andhra Pradesh [1984] 56 S ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e delivery the ship would be in existence as such it would be a sale of property. The Tribunal also noted that the transfer of the ship by the petitioner was for a price fixed and that the title in the ship did not vest with the purchaser till the delivery. The third feature highlighted by the Tribunal is that the bulk of the material used in the construction had to be procured by the manufacturer with its own costs and the purchaser has nothing to do with the procurement or escalation of costs or decrease in the costs of the material and that the materials were not purchased in the name of the purchaser but they were purchased in the name of the petitioner and were not earmarked for any particular ship except the engine. In view of the above features the Tribunal concluded that the cases did not fall within the ratio of the judgment in Hindustan Shipyard case [1970] 1 An WR 197. 14.. We shall now refer to the relevant terms of the contract in the present cases. In the contract, the petitioner is described as "the builder" and the person placing the contract was described as "owner". Article 2 which deals with the price, provides the method of payment as follows: "(a) 5% of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... acceptance when delivery of the vessel is effected, as stated above, it being expressly understood that, until such delivery is effected, the vessel and equipment thereof is at the entire risk of the builder, including, but not limited to, risks of war, insurrection and seizure by Government or authorities, whether Indian or foreign, and whether at war or at peace." Article 7 which deals with the title and risk, provides that the title and risk of the vessel shall pass to the owner upon acceptance when delivery of the vessel is effected as provided in the contract. The clause further provides that it being expressly understood that, until such delivery is effected, the vessel and equipment thereof, is at the entire risk of the builder, including, but not limited to, risks of war, insurrection and seizure by Government or authorities, whether Indian or foreign and whether at war or at peace. 18.. One more clause needs consideration and that deals with property in the vessel as under: "Article 15: Property in the vessel.-Without prejudice to article 17 hereof, the vessel as constructed and her engines, boilers and machinery and all materials from time to time intended for h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... identification and for preventing diversion of material for other uses and that as the unused material remains the property of the builder, it is not possible to conclude that at that stage the title in the ship passed to the owner so as to treat the contract as a "works contract". 20.. Clause 17 which deals with insurance, provides, inter alia, that in the event of vessel getting destroyed or damaged before delivery to the owner, the builder s obligation is to refund the instalments to the owner together with interest at the rate of 5 per cent per annum and that on payment of such instalments, the owner shall have no further right or claim. From this clause, it is manifest that in the event of vessel getting destroyed or damaged before the delivery to the owner, the obligation of the builder is to refund the instalments together with interest to the owner. Had the title passed to the owner on payment of the first instalment itself, as contended, the question of the builder refunding the instalment price to the owner would not have arisen. This position, in our view, clearly points to the fact that the title in the material, much less in the ship, does not pass to the owner on pa ..... X X X X Extracts X X X X X X X X Extracts X X X X
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