1968 (2) TMI 100 - HC - VAT and Sales Tax

Summary

Issues Involved:
1. Whether the Tribunal was justified in concluding that the applicants sold materials such as lining cloth, hair canvas, etc., used in stitching jobs.

Issue-wise Detailed Analysis:

1. Tribunal's Conclusion on Sale of Materials:
The primary issue is whether the Tribunal was justified in concluding that the applicants sold materials such as lining cloth, hair canvas, etc., used in stitching jobs. The Tribunal based its decision on sample bills indicating charges for materials like silk lining and concluded that there was a separate contract implied within the tailoring contract for the supply of materials of particular quality. The Tribunal opined that sales tax could be imposed on the value of materials used in a works contract if there was an express or implied agreement for the transfer of the material as such.

2. Nature of the Contract:
The applicants argued that the contract was a pure works contract, where the use of materials was ancillary to the work and labour involved. They contended that it was not permissible to divide the contract into two separate agreements without material evidence showing the intention of both parties to have such contracts. The applicants cited the case of Arun Electrics, where the Supreme Court vacated the High Court's decision due to insufficient evidence to support the finding of two separate contracts.

3. Precedents and Analogies:
The judgment referenced several precedents, including the Gujarat High Court case of A.A. Jariwala and Bros., where the contract for embroidery work on saris was deemed indivisible and not separable into two contracts for service and sale of materials. The principle from this case was applied, emphasizing that the use of valuable materials in a works contract does not necessarily indicate an intention to create separate agreements for sale and service.

4. Ancillary Use of Materials:
The Court examined whether the contract could be reasonably divided into two compartments: one for the sale of materials and the other for charges for work and labour. It was determined that the use of materials like thread, buttons, and lining cloth was ancillary to the execution of the tailoring contract. The materials were not delivered to the customer as such but were used in the preparation of the garment, making it difficult to split the contract into separate agreements.

5. Analysis of Bills and Evidence:
The Court noted that the materials used in the stitching jobs were not separately priced or charged in the bills presented. The materials were used as part of the execution of the work, and there was no evidence to show a separate agreement for their sale. The Court referenced decisions from the Calcutta and Madras High Courts, which supported the view that such contracts are primarily for work and labour, with the use of materials being incidental.

Conclusion:
The Court concluded that the Tribunal was not justified in law in determining that the applicants sold materials such as lining cloth, hair canvas, buttons, or thread to the customers. The reference was answered in the negative, and the respondents were ordered to pay the costs of the assessee, fixed at Rs. 250, with the amount of Rs. 100 deposited by the applicants to be refunded to them.