1978 (11) TMI 137 - HC - VAT and Sales Tax

Summary

Issues:
1. Whether the turnover of a partnership firm engaged in manufacturing rubber-stamps constitutes a sale liable to sales tax or a works contract.
2. Whether the process of preparing rubber-stamps involves the transfer of a chattel qua chattel for price, determining the nature of the contract as a sale or a contract for work and labor.
3. Whether the business of the petitioner can be classified into two categories based on the nature of the contract involved.

Analysis:
1. The High Court considered whether the turnover of a partnership firm engaged in manufacturing rubber-stamps should be assessed for sales tax or treated as a works contract. The petitioner contended that their business constituted a works contract, not sales. The Court examined the process of making rubber-stamps, emphasizing the skill and experience required in the preparation. It differentiated between rubber-stamps made to order and those prepared for general sale, classifying the former as works contracts and the latter as sales of chattel qua chattel.

2. The Court referred to previous Supreme Court judgments to determine the nature of the contract involved in the manufacturing of rubber-stamps. It highlighted the distinction between contracts for sale and contracts for work and labor. Citing the need to ascertain the primary object of the contract and the intention of the parties, the Court emphasized that if the substance of the contract involves skill and labor rather than the transfer of a chattel, it constitutes a contract for work and labor. The Court also discussed the possibility of dividing a contract into separate agreements based on the intention of the parties and the nature of the contract.

3. The judgment analyzed a previous case where a contract for preparing fur garments was deemed a contract for sale of goods rather than a works contract. Drawing a distinction between contracts primarily for the sale of goods and those for work and labor, the Court concluded that the petitioner's business could be classified into two categories: works contracts for customized rubber-stamps and sales of finished rubber-stamps for general consumption. Consequently, the Court allowed the petition, quashing the sales tax assessment orders and directing a fresh assessment based on the classification provided in the judgment.