TMI Blog1965 (1) TMI 44X X X X Extracts X X X X X X X X Extracts X X X X ..... ). -------------------------------------------------- The judgment of GAJENDRAGADKAR, C.J., HIDAYATULLAH, SIKRI and BACHAWAT, JJ., was delivered by SIKRI, J. SHAH, J. delivered a separate judgment. SHAH, J.- Whether a contract is one for execution of work or for performance of service, or is a contract for sale of goods must depend upon the intention of the parties gathered from the terms of the contract viewed in the light of surrounding circumstances. If the contract is one for work or for performance of service, the mere circum- stance that the party doing the work or performing the service uses goods or materials belonging to him in the execution of the contract will not be of any importance in determining whether the contract is one for sale of goods. It is common ground that under the scheme of the Sales Tax Acts enacted by State Legislatures, if in its true nature the contract is one for performance of service or for work, consideration paid is not taxable, for the States have authority under the Constitution by Schedule VII to legislate on the topics of tax on sale or purchase of goods (other than newspapers) and have no power to tax remuneration received ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the parties must be deter- mined. The agreement which is the subject-matter of the dispute between the parties is executed on behalf of the Governor of Orissa and the appellants for constructing "bus bodies" on the chassis supplied by the Governor of Orissa. In the second paragraph of the preamble it is recited that the Governor had accepted the quotation and had decided to place orders for construction of "bus bodies" on the chassis supplied by the Governor at the rates specified therein. The third paragraph recites that the appellants had agreed to construct "bus bodies" at the rate quoted and on the terms and conditions recited therein. The agreement then proceeds to set out the conditions of the contract. By the first condition the appellants are made responsible for safe custody of the chassis from the date of receipt thereof from the Governor till delivery and are bound to insure their premises including the chassis against fire, theft, damage and riot at their own cost. By that condition the appellants are made "responsible for the chassis and materials supplied" to them and have undertaken to indemnify the Governor for any loss or damage to the said material. The clause ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ach the contract may be deemed to be broken. The other party is ordinarily not concerned with the method or manner of producing the chattel agreed to be sold, if the specifications relating thereto are otherwise complied with. Imposition of an obligation to carry out the work with due diligence is indicative of the contract being one for work. This inference is strengthened by the proviso to clause 5 which imposes liability upon the appellants to pay damages until the defects detected on inspection are rectified. By the first part of clause 6, all work under or in the course of execution or executed in pursuance of the contract shall at all times be open to inspection by the Controller or officers authorised by him in that behalf and that they shall have the right to stop by a written order any work which in the opinion of the Controller has been executed with unsound, imperfect, unskilful or bad workmanship or with materials of inferior quality. The appellants on receipt of a written order are obliged to dismantle or replace such defective work or material at their own cost. If the appellants fail to comply with the order within seven days from the date of receipt of the order, th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... utral and may be consistent with the agreement being either one for sale or for work or service. Schedule "B " consists of the specifications for construction of the composite bodies. They set out the designs and the specifications of the underframe and floor, frame work, roof, panelling, side windows, doors, seats, driver's can, roof lamps, grab rails, window guard rails, wind screens, luggage carriers, finish and miscellaneous fittings. It is true that the specifications contemplated that the appellants had to supply certain goods which are not fixed to the "bus bodies". There are also provisions for supply of additional equipment such as wind screen wipers, locking arrangements, boxes for first aid equipment and complaint book. It is not, however, the case of the parties that the contract is a composite contract. It is part of a single contract that the "bus body" to be constructed has to conform to the specifications and in the manufacture of the completed bus body the equipment set out under the head "miscellaneous fittings" and else- where has to be provided. An elaborate argument was advanced before us by counsel for the State of Orissa suggesting that the "bus bodies" a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f goods is to ascertain whether the thing produced as a whole had individual existence as the sole property of the party who produced it at some time before delivery, and the property therein passes only under the contract relating thereto to the other party for price. If the thing has no individual existence as the sole property of the party producing it, the contract will be one for work or for service. Under condition 6 of the contract unfinished goods may be taken possession of by the Controller and appropriated to himself notwithstanding the objections which the appellants may have to that course. If the chassis and the body were destroyed before delivery as stipulated, loss of the body would undoubtedly fall upon the appellants, for by clause I of the agreement the appellants are bound to indemnify the State of Orissa for any loss that may be suffered by the State. But this covenant is not decisive of the true nature of the contract. A bailee of goods under a works contract may undertake a more onerous liability than what is prescribed by section 151 of the Contract Act: see section 152, Contract Act. Undoubtedly before delivery of a complete chassis with "bus body" und ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... their gross turnover receipts totalling Rs. 11,268-45 received from the State Government of Orissa for building bodies on the chassis supplied by the Government, during the quarter. The Sales Tax Officer refused to deduct this amount. On appeal, this claim was allowed by the Collector of Sales Tax, purporting to follow an earlier decision of the Orissa Sales Tax Tribunal. The Department appealed against this order to the Sales Tax Tribunal which, by its order dated June 2, 1961, affirmed the order of the Collector. The Tribunal, in brief, held that it was impossible to spell out a distinct and separate contract to sell any materials or chattels to the customers in the work of construction of the bodies on the chassis. On the application of the Department, the Sales Tax Tribunal referred to the High Court the following question: "Whether in the facts and circumstances of the case, the Tribunal is right in holding that the amounts received by the opposite party on the construction of bodies on chassis supplied by its customers under written contracts are not chargeable to the Orissa Sales Tax." The High Court, in a short order, following its decision in Commissioner of Sales Tax, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nto on April 20, 1957, between the appellant, called in the agreement "the Body Builders" and the State of Orissa. The State had accepted the quotations and decided to place orders for construction of 4(four) numbers of Bus Bodies on the chassis namely 4(four) numbers of 190" Wheel Base F.F.C. Dodge/ Fargo Chassis supplied by the Governor. The relevant clauses are as below: "1. (a) That the Body Builders shall be responsible for the safe custody of the chassis as described in Schedule 'A' from the date of the receipt of the chassis from the Governor (Supplier) till their delivery to the Governor and shall insure their premises against fire, theft, damage and riot at their cost, so that these chassis are covered by insurance against such risks. (b) That while the works are in course of construction and until the bus with bodies built are taken over by the Governor, the Body Builder shall be responsible for the chassis and materials sup- plied to them and shall indemnify the Governor for any loss or damage to the said material. (c) The completed bus bodies covered by this contract shall be delivered to the Governor on or before the 28th May, 1957, for two and 20th June, 1957, f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the opinion of the Controller, is deemed to have been executed with un- sound, imperfect, unskilful or bad workmanship or with materials of inferior quality. The Body Builder on receipt of such written order shall dismantle or replace such defective work or material at their own cost. In the event of failure to comply with the order within 7 days from the date of receipt of the order, the Controller shall be free to get the balance of the work done by any other agency and recover the difference in cost from the Body Builder. Provided that for this purpose the Controller shall be at liberty to enter upon the premises of the Body Builder and take delivery of the unfinished bodies. 7.. That the Body Builder shall be paid 50% of the cost of body building at the time of delivery and the rest one month thereafter. 8.. That the Body Builder will deliver the vehicles complete with bodies at the destination or the destinations to be named by the Controller at their own cost and risk and shall be entitled to recover from the Governor the actual cost of transport by road or rail, transit insurance charges if any and other necessary incidental charges." Schedule "B" gives the vari ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ollows that till delivery is made, the bus bodies remain the property of the appellant. It could, if it chose to do so, replace parts or whole of the body at any time before delivery. It seems to us that this is an important indication of the intention of the parties. If the property passes at delivery, what does that pass in. Is it movable property or immovable property? It will not be denied that the property passes in movable property. Then was this the very goods contracted for. Here again the answer is plainly in the affirmative. Mr. Sastri draws our attention to the following passage in Benjamin on Sales (8th Edition), page 167: "Where a contract is made to furnish a machine or movable thing of any kind and before the property in it passes, to fix it to land or to another chattel, it is not a contract for the sale of goods. In such contracts the intention is plainly not to make a sale of movables as such, but to improve the land or other chattel, as the case may be. The consideration to be paid to the workman is not for a transfer of chattel, but for work and labour done and materials furnished." He says that here the bus body is being fitted to a chassis, i.e., anoth ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... whenever a contract provides for the fixing of a chattel to another chattel, there is no sale of goods. A few simple illustrations will show that this cannot be the law. A wants new motor tyres. He goes to a dealer and asks that these may be supplied fitted on the car. Is there a sale of motor tyres or not. It is not an easy operation to fix new tyres; it needs an expert hand. But it will not be denied that it was in essence a contract for sale of goods. Take another illustration. A wants a luggage carrier to be fixed to his car. The carrier which B has needs to be altered a little. The contract is that he will alter it and fix it to the car. Has there been a sale of the luggage carrier or not? The answer obviously is "yes". Mr. Sastri further relies on a passage in Gannon Dunkerley's case [1959] S.C.R. 379; 9 S.T.C. 353., at pages 413-414: "It is of the essence of this concept that both the agreement and the sale should relate to the same subject-matter. Where the goods delivered under the contract are not the goods contracted for, the purchaser has got a right to reject them, or to accept them and claim damages for breach of warranty. Under the law, therefore, there cannot b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... se that the contract there was entire and indivisible for the construction of specified works including buildings for a lump sum and not a contract of sale of materials as such. Mr. Sastri then says that clause 3 is inconsistent with an agreement for sale of goods. This clause provides for additional work to be done for which no rate is specified in the contract. The clause, according to us, merely provides for extra payment if the Controller decided to order some additional things to be placed in the body. This is a neutral clause equally applicable to a contract for sale of goods or a contract for work and labour. Mr. Sastri then points to clauses 5 and 6 and submits that these are totally inconsistent with an agreement for the sale of goods. But we are unable to assent to this. Clause 5 provides for a time schedule and ensures that the delivery of the bus body shall take place within the stipulated time. Clause 6 is designed to avoid disputes in the future as to the quality of the material used and ensures that proper material is used. A contract for sale of goods to be manufactured does not cease to be a contract for sale of goods merely because the process of manufacture i ..... X X X X Extracts X X X X X X X X Extracts X X X X
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