TMI Blog1961 (4) TMI 74X X X X Extracts X X X X X X X X Extracts X X X X ..... appellants will be issued. - Civil Appeal No. 237, 238 of 1960, - - - Dated:- 19-4-1961 - DAS S.K., KAPUR J.L., HIDAYATULLAH M., SHAH J.C. AND VENKATARAMA AIYAR T.L. JJ A.V. Viswanatha Sastri, Senior Advocate, (S.R. Banerjee and S.C. Majumdar, Advocate, with him), for the appellants. S.P. Varma, Advocate, for the respondents. -------------------------------------------------- The judgment of DAS, KAPUR, HIDAYATULLAH and VENKATARAMA AYYAR, JJ., was delivered by VENKATARAMA AYYAR, J. SHAH, J., delivered a separate judgment. VENKATARAMA AYYAR, J. -Both these appeals arise out of the same facts and involve the determination of the same question, and this judgment will govern both of them. The appellant in Civil Appeal No. 237 of 1960 is a company registered at Recklinghausen near Dusseldorf in West Germany, and carries on business in the manufacture and erection of plants and machinery. On December 19, 1953, it entered into a contract with a company called Sindri Fertilisers and Chemicals (Private) Ltd., hereinafter referred to as the Owner, for assembling and installing machinery, plants and accessories for a coke oven battery and by-product ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n, fitting out, improvement or repair of immovable property". "Sale price" is defined in section 2(h)(ii) as meaning the amount payable to a dealer as valuable consideration for the carrying out of any contract, less such portion as may be prescribed, of such amount representing the usual proportion of the cost of labour to the cost of materials used in carrying out such contract. "Dealer" is defined in section 2(c) as meaning any person who sells or supplies any goods including goods sold or supplied in the execution of a contract. Section 2(i) defines "turnover" as meaning the aggregate of the amounts of sale prices received and receivable by a dealer in respect of sale or supply of goods or carrying out of any contract, effected or made during a given period. Section 4 is the charging section, and it provides that every dealer whose gross turnover during the accounting period exceeded Rs. 10,000 shall be liable to pay tax on sales which take place in Bihar, and section 5 provides that the "tax payable by a dealer under this Act shall be levied on his taxable turnover at such rate or rates and subject to such restrictions and conditions as may be laid down from year to year by an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ooks, accounts and documents for purposes of assessment, and this is quite understandable, as it was his duty to levy tax in accordance with the provisions of the Act. There- upon, the appellant filed petitions before the High Court of Patna under Articles 226 and 227 of the Constitution for the issue of appropriate writs for quashing the proceedings before the third respondent and for prohibiting further proceedings under the Act as being wholly incompetent. The grounds put forward in support of the petition were firstly that the State Legislature having authority to enact a law imposing a tax on the sales of goods was not competent to tax what under the law was not a sale, and that as the supply of materials in the course of the execution of works was not in law a sale of those goods, a tax on such supply was unauthorised; and secondly that, even if there was a sale of materials, that was in the course of import from Germany, and a tax thereon was repugnant to Article 286(1)(b) of the Constitution. After taking over the Indian section of the contract, the appellant in Civil Appeal No. 238 of 1960 had registered itself on May 11, 1953, as a dealer under section 9 of the Act an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... for the payment of price for the materials, as such, they could not be held to have been sold, the learned judges noticed without comment the contention of the Government Pleader for the respondents, based on section 9 of the Sale of Goods Act, that even though no price had been fixed for the materials, that could be determined from the account books and invoices and the course of dealings between the parties. The learned Judges then proceeded to observe: "I wish, however, to state that I do not express any concluded opinion on the question whether there is sale of materials liable to be taxed in the present case. The facts have not been fully investigated by the Sales Tax Authorities and the petitioners have not furnished all the account books and documents and other relevant information for the purpose of deciding this question. It would be open to the Sales Tax Authorities to investigate the facts and upon proper construction of the contract come to the finding whether, and if so to what extent, the petitioners are liable to pay sales tax. I have no doubt that in deciding this question the Sales Tax Authorities will keep in view the principle laid down by the Supreme Court ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sum of Rs. 2,31,50,000. Clause 4 requires the contractor to "provide all labour, materials, machinery, plant, tools, tackles and other implements for performing the works in a workman-like manner." Under clause 11, the contractor guarantees "to accomplish full production within 22 months from the 15th September, 1952," and further undertakes to fulfill the guarantees prescribed in Schedule II to the agreement "to the satisfaction of the owner within a period of three months from the date of accomplishment of full production." Clause 28 provides that in case the contractor fails or is unable to complete the works within the period, the owner might take possession of the works and of the materials, "which will become the property of the owner," and complete the works and deduct from the agreed price the expenses incurred in such completion. It is clear from the above clauses that the subject-matter of the agreement was the installation of the coke oven battery and its accessories, that the sum of Rs. 2,31,50,000 was the price agreed to be paid for the execution of those works, and that there was no agreement for the sale of materials, as such, by the appellants to the owner. In o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on such removal, the same shall revest in and become the property of the Contractor." Discussing the question whether by reason of this clause there was a contract of sale of the materials by the Contractor, distinct from the works contract, this Court held that its object was only to ensure that materials of the right sort were used in the construction and not to constitute a contract of purchase of the materials separatim. In the present case, clause 15 is even clearer that no sale of materials, as such, was intended, because it expressly provides that if they were destroyed by fire, tempest or otherwise, the loss would fall not on the owner, which must be the result if the property is taken to have been absolutely transferred to it, but on the contractor. The agrument based on section 9 of the Sale of Goods Act is, in our opinion, equally unsound. What that section enacts is that where there is a contract of sale of movables but the price is not mentioned, it has to be fixed either in the manner provided in the agreement or by having regard to the course of dealings between the parties, and where that is not possible, the buyer has to pay the seller a reasonable price. B ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ereby to move the court under Article 226 for issuing appropriate writs for quashing them on the ground that they are incompetent, without his being obliged to wait until those proceedings run their full course. That has been held by this Court in The State of Bombay v. The United Motors (India) Ltd. [1953] S.C.R. 1069, 1077; 4 S.T.C. 133., Himmatlal Harilal Mehta v. The State of Madhya Pradesh [1954] S.C.R. 1122, 1127; 5 S.T.C. 115. , and The Bengal Immunity Company Limited v. The State of Bihar [1955] 2 S.C.R. 603, 617-619, 764-766; 6 S.T.C. 446.. The position that emerges is that, if the proceedings before the Sales Tax Officer are founded on the provisions of the Act, which authorizes the levy of the tax on the supply of materials in construction contracts, then they must in view of the decision in The State of Madras v. Gannon Dunkerley Co. (Madras) Ltd. [1959] S.C.R. 379; 9 S.T.C. 353., be held to be incompetent and quashed. But if the proceedings relate to any extent to sales otherwise than under the contract, then the enquiry with respect to them must proceed before the authorities under the Act and the application under Article 226 must fail. We must now examine the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ts are liable on the basis of sales falling outside the agreement. It was stated before us for the appellants, and not contradicted by the respondents, that the Sindri Fertilisers and Chemicals (Private) Ltd., is a company controlled by the Government. If that is so, the respondents were at all times in pos- session of facts which would have shown whether the appellants entered into any transaction de hors the agreement, and it is significant that at no stage have they alleged any such facts. We are satisfied that the proceedings have at all stages gone on the footing that the liability of the, appellants arose under the contract and not otherwise. In that view, we must hold, following the decision in The State of Madras v. Gannon Dunkerley Co. (Madras) Ltd. that the proceedings taken by the respondents for imposing sales tax on the supplies of materials by the appellants, pursuant to the contract dated December 19, 1953, are illegal and must be quashed. In the result, the appeals are allowed and appropriate writs as prayed for by the appellants will be issued. The appellants are entitled to their costs throughout. SHAH, J. -In my view these appeals must fail. The appell ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to the specifications contained in the agreement and in consideration therefor receives payment as provided therein, and in such an agreement, there is neither a contract to sell the materials used in the construction, nor does property pass therein as movables, and accordingly in a building contract which is one, entire and indivisible, there is no sale of goods and it is not within the competence of the Provincial Legislature under Entry 48 in List II in Schedule VII of the Government of India Act, 1935, to impose a tax on the supply of the materials used in such a contract treating it as a sale. Relying upon the decision of this Court in Gannon Dunkerley's case [1959] S.C.R. 379; 9 S.T.C. 353., the appellants contend that the amount received by them under the contract dated December 19, 1953, is not liable to be assessed to sales tax. But the question whether the contract is a pure works contract or a composite contract has never been investigated. Undoubtedly, the formal document evidencing the contract suggests, prima facie, that it is a works contract, but in assessing liability to tax, the taxing authority is not restricted merely to the letter of the document: he has to en ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... question is principally a works contract. The preamble states that the appellants had agreed with the Sindri Fertilizers and Chemicals Ltd., to set up a complete coke oven battery ready for production as well as by-products plant on the site specified and to construct buildings, plants and machineries and deliver and supply accessories and articles and to render services fully described in the first schedule, subject to the guarantees to be fulfilled on the part of the appellants and terms and conditions mutually agreed and settled and mentioned in the second schedule for an all-inclusive price in accordance with the preliminary site plan. It is manifest from the preamble that there is a contract for the construction of a coke oven battery and by- products together with the plant, and also to deliver and supply accessories and articles. Undoubtedly, the price agreed to be paid is an "inclusive price" in respect of the entire contract, but that does not affect the nature of the contract to deliver and supply accessories and articles. The appellants have undertaken, subject to the terms and conditions mentioned in the contract, to execute and complete the works mentioned in the firs ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uthorities could not be expected without investigation to assert a state of facts which was not and could not be within their knowledge, and their statutory authority could not, because of their failure to so assert, be nullified. As I have already observed, the investigation of facts on the question of the liability to pay tax has to be made by the taxing authorities in whom that jurisdiction is vested. Before the facts on which the liability to tax depends are. ascertained, the High Court could not be asked to assume that the transaction was in the nature of a pure works contract and to decide the question as to the liability of the appellants on that footing. There is no ground for assuming that the taxing authorities will not give effect to the decision of this Court in Gannon Dunkerley's case, [1959] S.C.R. 379; 9 S.T.C. 353. after the true nature of the transaction is ascertained. In my view, the High Court was right in declining to issue the writ prayed for. ORDER By the Court: In accordance with the opinion of the majority, the appeals are allowed and it is directed that appropriate writs as prayed be issued. The appellants are also entitled to their cos ..... X X X X Extracts X X X X X X X X Extracts X X X X
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