TMI Blog1974 (10) TMI 81X X X X Extracts X X X X X X X X Extracts X X X X ..... S.T. Desai, Senior Advocate (A.V. Rangan and Miss A. Subhashini, Advocates, with him), for the respondent in C.A. Nos. 2229-2231 of 1969. S. Swaminathan and Mrs. S. Gopalakrishnan, Advocates, for the appellant in C.A. Nos. 2229-2231 of 1969. S. Swaminathan and Mrs. S. Gopalakrishnan, Advocates, for the respondent in C.A. Nos. 29. and 291 of 1970. -------------------------------------------------- The judgment of the court was delivered by KHANNA, J.- 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 is the short question which arises for determination in these five Civil Appeals Nos. 2229, 2230 and 2231 of 1969 and 290 and 291 of 1970. Appeals Nos. 2229, 2230 and 2231 of 1969 have been filed on certificate by T.V. Sundram Iyengar Sons Pvt. Ltd., Madurai, against the judgment of the Madras High Court. The other two appeals have been filed on certificate by the Commissioner of Commercial Taxes, Mysore, against the judgment of the Mysore High Court. This judgment would dispose of all the five appeals. The matter relates in the three a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... this judgment. We may set out the mode of dealings between the appellant- company and its customers in the three appeals mentioned above. As stated already, no formal agreements were produced by the assessee and the nature of transactions relating to the supply of bus bodies has been found on the basis of "repair orders". The repair order, to take a typical case, besides containing the name of the appellant-company, gives the date of the order, name and address of the customer, the make, model and condition of chassis supplied by the customer. Apart from other details, the repair order contains a column, according to which the assessee-appellant undertook "to construct and mount one semi-saloon mofussil type bus body, with 7 plywood for the floor, ayni wood for sides and frames". In another column dealing with the amount billed to the customer a sum of Rs. 9,000 is mentioned. The following is written under the head "Description": "Aluminium sheets and aluminium beadings for panels, rubber cushion for seats, rubber squab for back all covered with green leather cloth with seating capacity 51 in all, 4 seats extra" for all of which a sum of Rs. 450 is charged. Several specif ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... years 1960-61 and 1961-62. The Store Purchase Committee on behalf of the State of Mysore called for tenders from persons who were willing to construct bus bodies on the chassis supplied by the Government. Condition (8) of the tender was that the rate quoted should be per bus body. Tender of the assessee-firm, M.G. Brothers, Automobile Dealers, Bellary, who along with others submitted tenders, was accepted. Agreement dated January 23, 1959, was thereafter executed by the assessee and the State Government. Some of the important clauses of the agreement were as under: "(5) The contractors shall not be entitled to claim any sort of concession whatever on account of the rise in prices of raw materials or cost of labour due to whatsoever causes during the contract period. (6) The contractors shall agree to keep up the delivery period strictly, otherwise the penal clause shall be enforced and if there should be undue delay it would be open to the Mysore Government Road Transport Department to cancel the order or remaining portion of the order as a last resort. (7) The contractors shall make good to Government any loss, which may arise from the failure to accomplish the work satisfa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... age hereafter. The question with which we are concerned, as would appear from the resume of facts given above, is whether the construction of the bus bodies and the supply of the same by the assessees to their customers was in pursuance of a contract of sale as distinguished from a contract for work and labour. The distinction between the two contracts is often a fine one. A contract of sale is a contract whose main object is the transfer of the property in, and the delivery of the possession of, a chattel as a chattel to the buyer. Where the main object of work undertaken by the payee of the price is not the transfer of a chattel qua chattel, the contract is one for work and labour. The test is whether or not the work and labour bestowed end in anything that can properly become the subject of sale; neither the ownership of the materials, nor the value of the skill and labour as compared with the value of the materials, is conclusive, although such matters may be taken into consideration in determining, in the circumstances of a particular case, whether the contract is in substance one for work and labour or one for the sale of a chattel (see Halsbury's Laws of England, Vol. 34 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed, inter alia, that the appellants were responsible for the safe custody of the chassis from the date of their receipt from the Governor till their delivery to the Governor and that they had to insure their premises including the chassis against fire, theft, damage and riot at their own cost. The appellants had to construct the bus bodies in the most substantial and workman- like manner, both as regards material and otherwise in every respect in strict accordance with the specifications and were to deliver the bodies to the Governor on or before the dates specified in the agreement. The appellants guaranteed the durability of the body for two years from the date of the delivery. The agreement also provided that the work should throughout the stipulated period of the contract be carried on with all due diligence, that the appellants were liable to pay to the Governor a certain sum as liquidated damages for every day that the work remained unfinished after the date fixed, that all works under the contract should be open to inspection by the Controller or officers authorised by him in that behalf, that they had the right to stop any work which had been executed badly or with material ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that is that the loss would fall on the appellant. Clause 1 of the agreement provides for insurance of the chassis but there is no provision regarding insurance of bus bodies. Therefore, it follows 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." The dictum laid down by this court in the case of Patnaik and Company [1965] 16 S.T.C. 364 (S.C.)., in our opinion, fully applies to the case of the two assessees with which we are concerned in these five appeals. We agree with the High Court in the case of T.V. Sundaram Iyengar Sons[1970] 25 S.T.C. 160., that the property in the completed bus body passed only at the time of the delivery thereof as specific chattels fitted on to chassis. Same is also true, i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e of the assessee from Patnaik and Company [ 1965] 16 S.T.C. 364 (S.C.). was that in the case of Patnaik and Company [1965] 16 S.T.C. 364 (S.C.). , the bus bodies were to be delivered as a unit, while this was not so in the case of the assessee-firm. We are unable to agree with the High Court in this respect because the terms of the agreement show that the assessee had to construct and supply the bus body fitted to the chassis provided by the Government. Clause 11 expressly refers to the delivery of a complete bus. The prices which were quoted were also for each bus body. It can, therefore, be said that the bus body was delivered as a unit. The High Court has also referred to the fact that there was no express mention of the sale of bus bodies in the agreement. This fact by itself is not of much significance. In the case of Chandra Bhan Gosain v. State of Orissa and Others [1963] 14 S.T.C. 766 (S.C.)., the appellant manufactured and supplied large quantities of bricks to a company under a contract. There was a clause in the contract providing that "land will be given free" by the company. The appellant contended that the contract was only for labour or for work done and material fo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ls from the the case of Kailash Engineering Co.[1967] 19 S.T.C. 13 (S.C.). As has been pointed out above, the ownership in the material brought on the site under the terms of the contract was to vest in the railway in the case of Kailash Engineering Co. [1967] 19 S.T.C. 13 (S.C.)., The same cannot be said of the material used for the construction of the bus bodies by the two assessees with whom we are concerned. Unlike the terms of the contract in the case of Kailash Engineering Co. [1967] 19 S.T.C. 13 (S.C.). , there was nothing in the agreements between the assessees and their customers in the present appeals which vested the ownership of unfinished bodies in the customers. It may be mentioned that the case of Patnaik and Company [1965] 16 S.T.C. 364 (S.C.). was cited before this court in the case of Kailash Engineering Co. [1967] 19 S.T.C. 13 (S.C.)., Shah, J., speaking for the court, pointed out the essential differences between the two cases. The case of the assessees in these appeals, as mentioned earlier, falls squarely within the rule laid down in the case of Patnaik and Company [1965] 16 S.T.C. 364 (S.C.). . The case of Kailash Engineering Co. [1967] 19 S.T.C. 13 (S.C.). ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... x could consequently be fastened on the hotelier. It is plain that there is no parallel between the facts of the present appeals and those of the above-mentioned four cases. The case of Commissioner of Commercial Taxes, Mysore, Bangalore v. Hindustan Aeronautics Ltd. [1972] 29 S.T.C. 438 (S.C.)., related to the manufacture and supply of three models of railway coaches to the Railway Board. Advance "on account" payment to the extent of 90 per cent of the material to be used was made to the assessee on production of the inspection certificate. The stores were held as the property of the President and in trust for him on account of the advance. The property in the materials which were used for the construction of the coaches became the property of the President before they were used. The construction was done at a separately located shed and no other construction was undertaken therein. There was no possibility of any material for which advance was not drawn being used for the construction of the coaches. It was held that the transaction for the manufacture and supply of the coaches was a pure works contract. When all the materials used in the construction of a coach belonged to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... MNATH IYER and AHMED ALI KHAN, JJ., in M.G. Bros. v. The Commissioner of Commercial Taxes, Mysore, Bangalore (S.T.A. Nos. 6 and 7 of 1967) delivered on 2nd July, 1968, is printed below: ] M.G. BROS. Versus THE COMMISSIONER OF COMMERCIAL TAXES, MYSORE, BANGALORE The judgment of the court was delivered by SOMNATH IYER, J.- On behalf of the Government of the new State of Mysore, the Stores Purchase Committee called for tenders from persons who were willing to construct bus bodies on the chassis supplied by the Government. On the acceptance of the tender submitted by the petitioner before us, which is a firm which engages itself in bus body building and other activities, an agreement was entered not between the Government and the petitioner, under which he agreed to build bus bodies on the chassis supplied by the Government on terms and conditions enumerated in that agreement. This agreement was executed on 23rd January, 1959. When the petitioner produced its return under the Sales Tax Act for the assessment year 1960-61, it stated in its return that a sum of Rs. 9,74,460 represented the amounts received by it for the bus bodies constructed under the agreement for the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Court in Patnaik and Company v. State of Orissa [1965] 16 S.T.C. 304 (S.C.). and McKenzies Ltd. v. State of Maharashtra. He was of the opinion that all transactions reflected in an agreement under which a person agrees to build a bus body on the chassis supplied by another are sales, and that his view to that effect receives support from those two pronouncements of the Supreme Court. He was also of the opinion that the Deputy Commissioner had merely followed the pronouncement of this court in Shankar Vittal Motor's case [1964] 15 S.T.C. 771., without any independent application of his own mind to the question whether the intention of the parties was that there should be a sale of the bus bodies constructed for the Government. Mr. Swaminathan appearing for the appellant made three submissions in support of this appeal. The first was that the Commissioner of Commercial Taxes could not exercise any revisional jurisdiction under section 22-A. The second was that he proceeded to make his order under the mistaken supposition that there was no independent application of the mind of the Deputy Commissioner to the effect and scope of the stipulations in the agreement between the parties. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of enunciation by this court in Shankar Vittal Motor's case [1964] 15 S.T.C. 771. All that was expounded in that case was that the intention between the parties, having regard to all circumstances upon which they depended in the context of the agreement which was entered into between them at that point of time, was that the petitioner should only do some work for the Government and not that he should make a sale of the bus bodies to them. We, therefore, repel the argument resting on the plea of res judicata. We do not also think that Mr. Swaminathan is right in making the criticism that the Commissioner was of the opinion that the Deputy Commissioner had not looked into the agreement or discussed it. How we should understand the order made by the Commissioner is that he thought that the Deputy Commissioner had not correctly understood the stipulations in the agreement. So, we now proceed to discuss the only other argument maintained before us that there is no similarity between the stipulations contained in the agreement which was discussed in Patnaik's case [1965] 16 S.T.C. 364 (S.C.)., and McKenzies' case [1965] 16 S.T.C. 518 (S.C.)., and those in the agreement with which we ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... each case and that an interpretation or construction placed upon an agreement in one case cannot assist the interpretation in another. In Patnaik's case [1965] 16 S.T.C. 364 (S.C.)., upon which the Commissioner of Commercial Taxes depended, the agreement was between the appellants in that case and the State of Orissa for the construction of bus bodies on the chassis supplied by the Governor. The contention of the appellants that the agreement entered into between them and the Governor was for the performance of certain work and there was no sale of bus bodies, was negatived on the basis of the terms and conditions which the agreement between them set out. Referring to the decision of the High Court of Gujarat in Kailash Engineering Co. v. State of Gujarat [1964] 15 S.T.C. 574., on which dependence was placed for the appellants, the Supreme Court observed that it would not express any opinion on the correctness of that decision since what has to be examined in each case was the intention of the parties. But when that decision of the Gujarat High Court (Kailash Engineering Co. v. State of Gujarat [1964] 15 S.T.C. 574.) was appealed against by the State of Gujarat in State of Guj ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f that feature the Supreme Court said this: "The first circumstance was that the bus bodies were, throughout the contract, spoken of as a unit or as a composite thing to be put on the chassis, and this composite body consisted not only of things actually fixed on the chassis but movable things like seat cushions, and other things which could be very easily detached. In the contract, with which we are concerned, the coach bodies are not separately described as units or components to be supplied by the respondent to the railway. The language used in the contract everywhere describes the duty of the respondent to be that of constructing, erecting and furnishing coach bodies on the underframes supplied. At no stage does the contract mention that ready coach bodies were to be delivered by the respondent to the railway." What was said by the Supreme Court with respect to the agreement in the Gujarat case [1967] 19 S.T.C. 13 (S.C.). applies, in our opinion, equally to the agreement before us. As in the case of the agreement in the Gujarat case [1967] 19 S.T.C. 13 (S.C.)., the contract before us makes no mention in any part of it that the bodies should be delivered by the petitioner to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o stages, 90 per cent against "the delivery of the complete bus" and the balance after the completion of the entire order. It is difficult to understand how any of these two clauses can support the argument that the bodies to be built by the petitioner were composite units to be sold as such. At one stage it was submitted by Mr. Shantharaju that the announcement by the Stores Purchase Committee which called for tenders referred to the price to be quoted by the body builders for each body. When we proceed to ascertain the intention of the parties, we should look 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. The order of the Commissione ..... X X X X Extracts X X X X X X X X Extracts X X X X
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