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TMI Blog1974 (10) TMI 81X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 appeals against the judgment of the Madras High Court to assessment years 1955-56, 1956-57 and 1957-58. The Appellate Assistant Commissioner and the Appellate Tribunal held that the appellant-company was liable to pay sales tax under the Madras General Sales Tax Act, 1939, in respect of bus bodies constructed and fitted by it to chassis provided by the customers. On the matter having been taken up in revision by the appellant-company to the High Court, the High Court referred to the fact that no contracts or agreements as such were produced by the appellant-company. It was observed that the nature of the transactions relating to the supply of bus bodies had to be determined on the basis of forms of "repair orders" which the appellant-company u ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 specific items provide for windshield glass, rubber squabs, handles for entrances, helper canvass, electric buzzer, invoice lamp and roof lamps. Other specific items mentioned are leather cloth, protective flaps for curtains, felt cover for engine and electric wiper. The total bill comes to Rs. 10,171.50. Signatures of customers were also obtained under the following writing: "I hereby agree and definitely understand that M/s. T. V. Sundaram Iyengar & Sons Private Ltd. assume no responsibility for loss or damage by whatever means to vehicles or spares placed with them for storage, sale or repair. The above vehicle/spares left in your premises or driven by your employees is entirely at my employer's/owner's risk as regards accidents, damage by fire ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 satisfactorily in time or in accordance with required specifications as noted in the order or by Government having to get the work done from other sources at rates higher than those contracted for due to the negligence, delay or incomplete workmanship on the part of the contractors. (8) The contractors shall insure the chassis at their cost for safe custody of the same at their premises. (10) The contractors agree to give a warranty of 6 months in respect of each and every bus built by them against all defects in the construction of the body. If any defects are found or develop in the bus built by the contractors during the course of the warranty period of 6 months from the date they are handed over to our units, the contractors hereby agree to rectify the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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, p. 6, Third Edition). The Madras General Sales Tax Act, 1939 (Madras Act 9 of 1939), was enacted in pursuance of the powers contained in entry 48 of List II of the Seventh Schedule of the Government of India Act, 1935, which deals with sale of goods. The corresponding entry in the Constitution is entry No. 54 in List II of the Seventh Schedule. It was in exercise of the powers under this entry that the Mysore Sales Tax Act, 1957 (Mysore Act No. 25 of 1957), was enacted. It is now settled law that the words "sale of goods" have to be construed not in the popular sense but in their legal sense and should be given the same meaning which they carry in the Sale of Goods Act, 1930. The expression "sale of goods " is a nomen juris, its essential ingredient ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... riod 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 materials of inferior quality and that on receipt of a written order the appellants had to dismantle or replace such defective work or material at their own cost. The appellants were entitled to 50 per cent of the cost of body-building at the time of delivery and the rest within one month thereafter. In answering the question whether the agreement was a contract for work or a contract for sale of goods, the majority consisting of Gajendragadkar, C.J., Hidayatullah, Sikri and Bachawat, JJ. (Shah, J., dissenting), held that the contract as a whole was a contract for sale of goods and therefore the appellants were liable to sales tax on the amount received from the State of Orissa for the construction of the bus bodies. In arriving at the above conclusion, Sikri, J., ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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, in our opinion, of the bus bodies constructed by M.G. Brothers. The salient features of the dealings between the two assessees with whom we are concerned and their customers as they emerge from the facts given above are that the property in the material used by the assessees in constructing the bus bodies never passed to their customers during the course of construction. It was only when the complete bus with the body fitted to the chassis was delivered to the customer that the property in the bus body passed to the customer. There was nothing to prevent the assessees from removing a plank, or other material after fixing it to a chassis, and using it for a different purpose or for a different bus body. The present is also not the case wherein the assessee unde ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 found, and that there was really no sale of any goods on which sales tax could be levied. It was held by this court that the essence of the contract was the delivery of the bricks and that it was a contract for the transfer of chattels qua chattels. Argument was advanced in that case that the contract nowhere used the word "sale" in connection with the supply of bricks. This contention was repelled and it was observed that: "It is not necessary that to constitute a sale, the word 'sale' has to be used. We have said enough to show that under the contract there was a transfer of property in the bricks for consideration and, therefore, a sale notwithstanding that the word 'sale' was not used." Mr. Swaminathan on behalf of the assessees has referred to the case of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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.)., cannot, therefore, be of much assistance to the assessees. Equally of no assistance to the assessees are the four cases, State of Madras v. Richardson & Cruddas Ltd. [1968] 21 S.T.C. 245 (S.C.). , State of Rajasthan v. Man Industrial Corporation Ltd.[1969] 24 S.T.C. 349 (S.C.)., State of Rajasthan v. Nenu Ram [1970] 26 S.T.C. 268 (S.C.). and State of Himachal Pradesh v. Associated Hotels of India Ltd [1972] 29 S.T.C. 474 (S.C.)., to which reference has been made by Mr. Swaminathan on behalf of the assessees. The case of Richardson & Cruddas Ltd.[1968] 21 S.T.C. 245 (S.C.). related to a contract for the fabrication, supply and erection of steel structures for a sugar factory. This court on consideration of the material produced on record held that the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ent 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 the railways, there could be no sale of the coach itself. The difference between the price of a coach and the cost of material could only be the cost of the services rendered by the assessee. Bare narration of the facts of the above case would show the difference between this case and the cases which are the subject-matter of these appeals. Reference has also been made by Mr. Swaminathan to the observations on page 167 of Benjamin on Sale (8th Edition) which were based on the case of Anglo-Egyptian Navigation Co. v. Rennie [1875] L.R. 10 C.P. 271., Those observations were also referred to in the case of Patnaik and Company [1965] 16 S.T.C. 364 (S.C.). Sikri, J., then dealt with the facts of the case of Anglo-Egyptian Navigation Co.(2) and held that that cas ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ld 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 Mysore State Road Transport Corporation which by then had been established under the Road Transport Corporation Act and which had taken over the undertaking of the Mysore Government Road Transport Department. The Commercial Tax Officer, who reached the conclusion that the monies received by the petitioner represented the price of the bus bodies sold by it to the corporation, included that amount in the taxable turnover, but in the appeal preferred by the petitioner to the Deputy Commissioner of Commercial Taxes, it was able to get an order in its favour. The Deputy Commissioner was of the opinion that the contract entered into by the petitioner and the Government was in the nature of a works contract, and that, under that contract, there was no sale of the bus bodies to the corpor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... bmissions 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. The third was that the agreement in the present case had no resemblance to the agreement which was considered by the Supreme Court in Patnaik's case [1965] 16 S.T.C. 518 (S.C.)., or in McKenzies' case, and that there was greater similitude between the agreement in the present case and that which was discussed by the Supreme Court in State of Gujarat v. Kailash Engineering Co. [1967] 19 S.T.C. 13 (S.C.). We do not think that there is any substance in the objection to the jurisdiction exercised by the Commissioner. Although it is true as Mr. Swaminathan submitted to us that the language of the agreement, which was discussed by this court in Shankar Vittal Motor's case [1964] 15 S.T.C. 771., is identical with the language of the agreement with which we are concerned, it is obvious that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e 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 are concerned in this case. When we proceed to consider the stipulations in the agreement before us, we observe that the agreement is "for the construction of the mofussil city type of buses for the Mysore Government". That was what was stated in clause 2 of the preamble to the agreement. In clause 1 the petitioner was described as a contractor, and it states that the contractor had agreed "to perform the work" described in the schedule to the agreement. In clause 7 it was stated that if the petitioner did not perform the "work" satisfactorily, the Government would have the liberty to get the "work" done by someone else. There was also a reference in that clause to the consequence of "incomplete workmanship" on the part of the petitioner. Clause 9 authorised the General Manager of the My ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... endence 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 Gujarat v. Kailash Engineering Co. [1967] 19 S.T.C. 13 (S.C.)., the Supreme Court affirmed the view taken by the High Court of Gujarat pointing out the distinguishing features between the agreement in Patnaik's case and that in the Gujarat case [1967] 19 S.T.C. 13 (S.C.). The Supreme Court was of the view that the dissimilarity between the two agreements was demonstrated by at least three features of the agreement in Patnaik's case[1965] 16 S.T.C. 364 (S.C.).,. The first, as explained by the Supreme Court, was that while the agreement in Patnaik's case [1965] 16 S.T.C. 364 (S.C.)., referred to the bodies to be constructed in that case as composite bodies distinct from the chassis or the underframes on which they were constructed, the contract the Gujarat case [1967] 19 S.T.C. 13 (S.C.). contained ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dent 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 the Government as separate or composite units. On the contrary, it is clear from clause 11 of the agreement that what had to be delivered, by the petitioner to the Government was "the complete bus". To the question whether the body had to be delivered to the person for whom it was built as a composite unit distinct from the underframe on which it was constructed, the Supreme Court addressed itself, for the reason that was explained by it in Chandra Bhan Gosain v. State of Orissa [1963] 14 S.T.C. 766 (S.C.)., the question to be examined in a case like the present one is whether the intention of the parties in making the contract was that a chattel should be produced and transferred as a chattel for consideration. So it was that the Supreme Court investigated the question whether the inten ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pect 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 Commissioner which does not discuss any of these aspects and which assumes that what was decided in Patnaik's case [1965] 16 S.T.C. 364 (S.C.). has universal application to all agreements under which one person agreed to build a bus body to another, cannot be supported. We therefore allow this appeal and set aside the order made by the Commissioner and restore that made by the Deputy Commissioner of Commercial Taxes. The appellant will get his costs. Advocate's fee Rs. 250. SALES TAX APPEAL No. 7 of 1967. The questions arising in this appeal are the same as those on which we made an adjudication in Sales Tax Appeal No. 6 of 1967 by the judgment which we just now delivered. For the reasons stated in that judgment, we allow this appeal, set aside the order of the Commissioner of Commercial Taxes and restor ..... X X X X Extracts X X X X X X X X Extracts X X X X
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