TMI Blog1971 (12) TMI 99X X X X Extracts X X X X X X X X Extracts X X X X ..... anatha Iyer, Senior Advocate (R.B. Datar and M.S. Narasimhan, Advocates, with him), for the appellant. B. Sen, Senior Advocate (Santosh Chatterjee, G.S. Chatterjee and P.K. Chakravarthi, Advocates with him), for intervener No.1. D. Goburdhun, Advocate, for intervener No. 2. -------------------------------------------------- The judgment of the court was delivered by SIKRI, C.J. -In this appeal by certificate granted by the High Court of Mysore the only question involved is whether the delivery by the respondent-Hindustan Aeronautics Ltd.-hereinafter referred to as the assessee-to the Railway Board of railway coaches models 407, 408 and 411 is liable to sales tax under the Central Sales Tax Act. The Commercial Tax Officer, by assessment order dated March 28, 1964, in respect of the assessment year 1958-59, included the turnover in respect of the supply of these coaches. The Sales Tax Officer rejected the contention of the assessee that there was no sale involved in the execution of the works contract in view of certain decisions of the High Courts; e.g., McKenzies Limited v. The State of Bombay [1962] 13 S.T.C. 602., and Jiwan Singh v. State of Punjab ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Sales Tax Act read with section 9(3) of the Central Sales Tax Act. The High Court was not satisfied with the material on record and directed that a report be sent on three points, viz.: "(i) Whether and if so to what extent the assessee has drawn advance payment from the Railway Board in respect of the materials utilised for completing the contracts in question; (ii) Whether any material, in respect of which no advance has been drawn, has been utilised by the assessee for completing the contracts; and (iii) Whether the assessee has used for completing the contracts any material not specifically procured for the purposes of completing the contracts." The Commercial Tax Officer submitted his report, and certain extracts may be reproduced below: "My findings revealed that as and when they purchased materials, they sent to the Railway Board 'an invoice' accompanied by a list of the details regarding the materials purchased. 90 per cent. of the value of these materials was then paid to the company after inspection of the materials by the Board's representative. Invoice No. 31009 of 15-10-1956 is obtained as a sample. This invoice shows that materials for the value of Rs. 2,60 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... for providing for materials and for planning capacity for the stock in question. You should therefore treat this as a firm booking of your capacity." After discussions and settlement of terms between officers of the Government of India and of the assessee, the Railway Board placed orders with the assessee. The terms agreed between the parties are found stated in a letter of the Government of India, Ministry of Railways (Railway Board) No. 57/142/RE (163) dated May 4, 1957. This relates to the first of the models 407. We may extract some portions of the letter. It is stated thus: "In continuation of their letter No. 56/142/3/RE dated 8-1-57 the Railway Board are pleased to place an order on your works for the manufacture and supply of the following coaching stock on terms and conditions stated under para. 2 below: ------------------------------------------------------------------------------------ Item No. of Rly. Particular Price per coach Board's specification Nos. (without wheels Rolling Description of stock and required and axles and Stock Drawing No. underframes) Programme 1957-58 --------------------------------------------------------------- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... we may set it out fully. "1. Standing indemnity for advance payment against contract relating to Railway Board's order for construction and delivery of all metal III class B.G. coaches now pending under orders Nos. 52/142/4/M dated 16th February, 1952, and 53/142/4/M dated 3rd March, 1953, and against contracts in respect of future orders that may be given by the Railway Board from time to time, by the Hindustan Aircraft Ltd., Bangalore, represented by General Manager hereinafter called the Company in favour of the President of the Union of India. The Hindustan Aircraft Ltd., hereby undertake to hold at their works at Bangalore for and on behalf of the President of the Union of India and as his property in trust for him the stores and articles in respect of which advances are made to them under Railway Board's letters, Nos. 52/142/4/M dated 16th February, 1952, and 53/142/4/M dated 3rd March, 1953, and hereafter to be made to the Company under future orders from the Railway Board from time to time. 2.. The said stores and articles shall be such as are required for the purpose of the pending and future contracts and the advances made and to be made are without prejudice to the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... - (1) [1965] 16 S.T.C. 518 (S.C.)-MoKenzies v. State of Maharashtra (2) [1965] 16 S.T.C. 364 (S.C.); [1965] 2 S.C.R. 782-Patnaik Co. v. State of Orissa. on the subject of this court and the High Courts, but it seems to us that ultimately the answer must depend upon the terms of the contract. The answer to the question whether it is a works contract or it is a contract of sale depends upon the construction of the terms of the contract in the light of the surrounding circumstances. In this case the salient features of the contract are as follows: (1) The Railway books capacity of the assessee for the purpose of construction of railway coaches. (2) Advance on account is made to the extent of 90 per cent. of the value of the material on the production of a certificate by the inspecting authority. (3) The material used for the construction of coaches before its use is the property of the Railway. This is quite clear from para. 1 of the indemnity bond set out above. No other meaning can be given to the words in the bond to the effect that "the Hindustan Aircraft Ltd. hereby undertake to hold at their works at Bangalore for and on behalf of the President of the Union of Indi ..... X X X X Extracts X X X X X X X X Extracts X X X X
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