1974 (10) TMI 81 - SC - VAT and Sales Tax

Whether the supply for consideration by an assessee of bus bodies constructed and fitted to chassis provided by the customers amounts to sale chargeable to sales tax? Held that - Appeal allowed. Looking into the agreement eventually executed and not to the invitation for tenders and even so we find that what is specified in that invitation for tenders is that the price for building the bodies should be quoted by the tenderer with respect to each body. That does not mean that the intention of the parties was that the bodies should be treated as independent or composite units to be produced and sold as such. Indeed the preamble to that invitation by the Stores Purchase Committee makes it clear that what the tenderer was expected to do was the construction of the body and not to make a sale.

Issues Involved:
1. Whether the supply of bus bodies fitted to chassis provided by customers amounts to a sale chargeable to sales tax.
2. The distinction between a contract of sale and a contract for work and labour.
3. The applicability of previous judgments to the current case.

Issue-wise Detailed Analysis:

1. Supply of Bus Bodies as a Sale Chargeable to Sales Tax

The primary issue in these appeals was whether the supply of bus bodies constructed and fitted to chassis provided by customers constitutes a sale chargeable to sales tax. The Supreme Court held that the supply of bus bodies by the assessees after fitting them to the chassis supplied by customers amounts to a sale of goods. The court observed that the property in the completed bus body passed only at the time of delivery as specific chattels fitted onto the chassis. This conclusion was drawn from the fact that the property in the materials used for constructing the bus bodies did not pass to the customers during construction but only upon delivery of the complete bus.

2. Distinction Between a Contract of Sale and a Contract for Work and Labour

The court examined whether the transactions were contracts of sale or contracts for work and labour. A contract of sale is characterized by the transfer of property in a chattel as a chattel to the buyer, whereas a contract for work and labour involves the main object of work undertaken without the transfer of a chattel qua chattel. The court referenced the principles laid out in Halsbury's Laws of England and previous judgments, emphasizing that the key test is whether the work and labour bestowed end in something that can properly become the subject of sale.

In the case of T.V. Sundaram Iyengar & Sons, the Tribunal and the High Court concluded that the transactions were predominantly sales of built bus bodies, with the work and labour being incidental. The High Court noted that the property in the completed bus body passed only at the time of delivery, confirming the predominance of the sale element over the contract of work and labour.

3. Applicability of Previous Judgments

The court discussed previous judgments, particularly Patnaik and Company v. State of Orissa and McKenzies Ltd. v. State of Maharashtra, which dealt with similar issues of constructing bus bodies on chassis supplied by customers. In Patnaik and Company, the majority held that the contract was a contract of sale, with the property in the bus bodies passing upon delivery. The court found that the facts of the present appeals aligned with the principles laid out in Patnaik and Company, where the property in the materials used for construction did not pass to the customer until the completed bus body was delivered.

The court also distinguished the present case from the case of State of Gujarat v. Kailash Engineering Co., where the property in the materials vested in the railway even during the process of construction, making it a works contract. This distinction was crucial in affirming that the transactions in the present appeals were contracts of sale.

Conclusion

The Supreme Court dismissed Civil Appeals Nos. 2229, 2230, and 2231 of 1969, upholding the liability of the appellant-company to pay sales tax. Civil Appeals Nos. 290 and 291 of 1970 were allowed, setting aside the judgment of the Mysore High Court and restoring the order of the Commissioner of Commercial Taxes, Mysore. The court concluded that the supply of bus bodies fitted to chassis provided by customers constitutes a sale of goods, making the assessees liable to pay sales tax.

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