TMI Blog1983 (12) TMI 259X X X X Extracts X X X X X X X X Extracts X X X X ..... 6-12-1983 - TULZAPURKAR V.D. PATHAK R.S. AND SABYASACHI MUKHARJI JJ. S.T. Desai, Senior Advocate (S.J. Chandran and Mrs. A.K. Varma, Advocate, with him), for the appellant. S.S. Jawali and Swaraj Kaushal, Advocates, for the respondent. -------------------------------------------------- The judgment of the Court was delivered by SABYASACHI MUKHARJI, J.- These appeals by special leave are from the judgment and decision of the High Court of Karnataka dated 1st December, 1976, involving the questions of assessability of the appellant to sales tax, Central as well as State. While granting leave, this Court excluded the question whether the sales effected in the canteen by the appellant were assessable to sales tax. By the impugned judgment, the High Court of Karnataka had dismissed several writ petitions against several orders being S.T.R.P. Nos. 28, 27 and 29 of 1975 under the Karnataka Sales Tax Act, for the years 1960-61, 1961-62 and 1962-63 respectively and also three others namely; S.T.R.P. Nos. 25, 26 and 24 of 1975 under the Central Sales Tax Act for the corresponding years respectively, at the instance of the present appellant. These involved comm ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is, however, a specimen contract that was entered into between the appellant and I.A.F. being agreement dated 23rd June, 1951, hereinafter referred to as "1951 contract". The agreement is described as "contract for the flight servicing and maintenance of the H.Q. Training Command, I.A.F. Communication Flight". The agreement was between Hindustan Aircraft Limited, described in the agreement as the "contractor" and the President of India, described in the agreement as the "owner". It may be mentioned that the Hindustan Aircraft Limited has later on become the appellant, i.e., M/s. Hindustan Aeronautics Limited. As the contentions of the parties in these appeals centered on the question whether the contracts in question, the income of which has been subjected to sales tax, were works contracts only or were agreements to sell spare parts, it would be relevant to refer in detail to some of the clauses of the "1951 contract". The agreement states that the "contractor" agrees to accomplish for the "owner" the servicing and maintenance of the H.Q. Training Command, I.A.F. Communication Flight, and works required on visiting aircrafts, to the standard as specified in the said agreement a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed in clause 6 of the agreement. The other incidental provisions of clause 6 are not relevant for the controversy in question. Clause 7 of the 1951 agreement dealt with indemnity for loss or damage which is not relevant for our purposes. Clause 8 dealt with right to cancel the agreement. Clauses 9 and 10 provided for "inspection". Clause 11 prohibited the contractor, the appellant, from in any way assigning or transfering any rights or benefits under the agreement except with the previous consent of the owner in writing. Clauses 12, 13 and 14 are also not relevant for our purpose. We may mention that reliance was also placed on behalf of the appellant on an affidavit by one Shri S. Krishna Murthy who was the Sales Officer of the Overhaul Division of the appellant-company and which affidavit had been filed before the Sales Tax Tribunal in Mysore, Bangalore. In the said affidavit, lie had described the nature of the works done by the appellant in connection with repairs and had mentioned that two types of works were done; one was overhaul of aircrafts, accessories and equipments thereof, and the other known as fixed quotation basis. It is not necessary to refer to the said affidavi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... their instruments and accessories and that there was no sale contracts as such in pursuance whereof, the spare parts in question could be said to have been sold to the I.A.F. The Tribunal had negatived the contention of the appellant and the appellant had gone up in revision before the High Court. The High Court was of the view that whether the supply of the spare parts by the appellant would amount to sale or not would depend on the fact as to whether there was a sale contract between the appellant and the I.A.F. in that regard. The High Court was of the view that, in the light of certain documents which we would also incidentally note, it could not be said that supply of spare parts and other materials was not in contemplation of the contracting parties and the spare parts in question became the property of the owner, i.e., I.A.F., only by way of accretion to the aircrafts for being used in the process of executing the contracts and not as a result of the agreement between the contracting parties. The High Court referred to certain decisions and came to the conclusion that in the present case what was sought to be brought within the purview of the Sales Tax Act was the cost to t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... "1951 contract" mentioned before that the contracts in question manifested the clear intention that in substance and reality these were agreements to carry out works of assembling, repairs, servicing and overhauling of the aircrafts being the property of the Indian Air Force. We must emphasise that the property in such planes was and had all along continued to remain with the Air Force. Relevant contracts and the whole transactions between the parties indicate that the materials used in the process of such assembling, repairs, servicing and overhauling were either supplied by the Indian Air Force or were of the appellant, the bulk was supplied by the Government. The question therefore is, was it the intention to do the works undertaken as one job or not. The counsel on behalf of the appellant contended that that was the intention and there was no intention whatever to pass any property in any chattel qua chattel. It is well-settled that the difference between contract of service and contract for sale of goods, is, that in the former, there is in the person performing work or rendering service no property in the things produced as a whole notwithstanding that a part or even the w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... here was any material on record to suggest, that the spare parts in question were either manufactured or supplied as being incidental to the work of servicing and maintenance entrusted to the appellant or were loaned to the I.A.F. It was urged on behalf of the revenue that the correspondence on record and bills and invoices clearly demonstrated the intention of the parties to incorporate a separate agreement for the sale of spare parts by the appellant in the agreement. According to the counsel, the contract of 1951 consisted of two separate agreements. The parties had consciously treated the works and the supply of materials separately and our attention was drawn to the clauses dealing with the same. It was urged that the contract contained separate stipulation for the work and for the supply of spare parts. It was also emphasised that the appellant was a regular manufacturer of the spare parts involved in the case of supply to the I.A.F. As has been clearly stated in the Halsbury's Laws of England, Third Edition, Volume 34, a contract of sale of goods must be distinguished from a contract for work and labour. The distinction is often a fine one. A contract of sale is a contract ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mpany before installation. The actual transportation charges were to be in addition to the price stipulated in the contract and the terms of payment provided "25 per cent advance, 65 per cent against delivery and remaining after completion of erection and handing over of the shutters to the satisfaction" of the company. The assessee had submitted the bill to the company after completion of the fabrication of the rolling shutters, but before they were erected and installed at the premises of the company. On the question whether the contract was a contract for sale or a contract for work and labour, the High Court had held, agreeing with the Sales Tax Tribunal, that the contract was a divisible contract, which essentially consisted of two contracts, one for the supply of rolling shutters for money and the other for service and labour and that the amount payable at the stage of delivery represented the sale price of rolling shutters and it was liable to sales tax. On appeal, by special leave, this Court held that the contract was one single and indivisible contract and the erection and installation of the rolling shutters was as much a fundamental part of the contract as the fabricati ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by the 1951 agreement set out hereinbefore, that the transactions were as a result of composite contracts involving the execution of works, viz., overhauling, repairing, servicing and in one year assembling, Air Force planes, entrusted to the appellant. The question is, whether this composite contract was divisible into one exclusively for work and labour and another for sale of materials. The fact that there is supply of materials for the purpose of execution of the works contracts undertaken by the appellant cannot be disputed. But the question then arises whether that can be taken as pursuant to a distinct contract with a view to execute the work undertaken. In this connection we have already mentioned the principles enunciated by the statement of Halsbury's Laws of England, Third Edition, Volume 34, pages 6 and 7, para 3. It would be appropriate in our opinion, because it clearly enunciates the principles, to refer to the statement of law in Benjamin's Treatise on the Law of Sale of Personal Property with reference to the French Code and Civil Law, Eighth Edition (1950) at pages 167-168, where the learned Editor has deduced the principles that would be applicable in deciding ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... High Court, that it cannot be said that parties did not contemplate and apply their minds to the question of spare parts and other materials necessary for the execution of the works. It was emphasised on behalf of the respondent and on this aspect the decision of the High Court of Karnataka as well as the decision of the Tribunal were relied upon to stress the point that the price separately provided as cost plus 10 per cent. The bills and the invoices were also made separately indicating the prices involved in these transactions. But it is important to emphasise that clause 1 of the contract was to accomplish for the owner the servicing and maintenance of the Headquarters Training Command, I.A.F. Communication Flight, and works required on visiting aircrafts, according to the standard as specified hereunder as these airplanes were necessary to be kept in readiness and that as there should be no delay in getting the materials, the contract in detail provided that the works would be carried out by the contractor and payment to be made by the owner at cost plus 10 per cent profit or at the contractor's standard fixed rates. The additional work that would be required as specified i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tor. It was urged before us that the contractor in this case the appellant is also a dealer and manufacturer of these spares and materials, to emphasise that these materials were not prepared or produced or procured by the contractor on adhoc basis for the purpose of execution of the jobs entrusted to the contractor. This position is indisputably true. But it has also to be emphasised that what spare parts or materials that would be required were not identified goods and it was submitted that these would be treated to be the goods of the owner, and given on "contract loan". It appears to us that the idea was that the moment these spares and materials were required for the jobs entrusted to the appellant and there was delay in supplying these spare parts and materials, the contractor would be free to procure or obtain these spares and materials either by manufacturing or by purchase from the market, local or foreign, these goods to be identified and would be treated by the operation of the contract to be the goods of the owner of the planes. It is true as was emphasised that in order to be given out on loan by the "owner" to the contractor, the "owner" must have property in the sp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s to meet all situations. All avoidable and conceivable delays were planned to be eliminated and in the background of this second factor, it is further to be emphasised that for the bulk of the materials, the Government undertook to supply the spares and materials and it is only in those cases where these materials could not be supplied or provided for by the Government or there was delay, that it was stipulated that these could be procured or manufactured by the contractor within the prices sanctioned by the Government, and after being procured or manufactured by the contractor, these could not be used for any purpose except in the execution of the jobs entrusted to the contractor. The contractor had no disposing power or property in these spares and materials. The fact that these materials were separately placed at cost plus 10 per cent profit were to ensure quick and proper execution of the works and were like the railway coaches' case neutral factors. This conclusion is strengthened by the expressions we have extracted from the 1951 contract itself. It is manifest in the instant case from the terms of the contracts and transactions, as in the railway coaches' case and as wa ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
