TMI Blog1983 (12) TMI 260X X X X Extracts X X X X X X X X Extracts X X X X ..... ated:- 16-12-1983 - TULZAPURKAR V.D., PATHAK R.S. AND SABYASACHI MUKHARJI JJ. S.T. Desai, Senior Advocate (Y.S. Murthy and C.S.S. Rao, Adcocates, with him), for the appellant. V.S. Desai, Senior Advocate (R.K. Mehta, Advocate, with him), for the respondent. -------------------------------------------------- The judgment of the Court was delivered by SABYASACHI MUKHARJI, J.- This is an appeal by special leave from the order dated 31st December, 1981, passed by the Sales Tax Tribunal, Orissa. The appellant who was the assessee under the Central Sales Tax Act, 1956, went up in appeal against the confirming orders of the Assistant Commissioner in respect of the assessment years 1974-75, 1975-76 and 1976-77. The Sales Tax Officer, Koraput I Circle, Jeypore, had made the orders under rule 12(3) of the Central Sales Tax (Orissa) Rules, 1957, making demands of Rs. 1,21,38,586.00 for the year 1974-75, Rs. 1,29,64,637.00 for the year 1975-76 and Rs. 1,37,72,652.00 for the year 1976-77. The appellant is a dealer registered under section 7(1) of the Central Sales Tax Act, 1956, under Koraput I Circle in the State of Orissa. M/s. Hindustan Aeronautics Limited (h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... anufacture of MIG-21 M Aircraft and other equipment in India. Dear Sir, On behalf of the President of India, I have to state that an agreement was signed on 30th October, 1969 (copy already forwarded to you) between the Government of India and the Government of Union of Soviet Socialist Republics for the manufacture under licence. 2.. The manufacture of the said equipment as defined in the above said agreement is hereby entrusted to Hindustan Aeronautics Limited, Bangalore, in terms of the said agreement. Under this entrustment the responsibility for the proper implementation of the agreement shall be exclusively that of Hindustan Aeronautics Limited except that the Government may from time to time advise the company about the programme of manufacture of the said equipment. 3. All payments falling due under the said agreement to the Government of the Union of Soviet Socialist Republics shall be made by Hindustan Aeronautics Limited, Bangalore, on behalf of the Government. 4.. This entrustment shall remain in force till it is revoked or altered by the President of India. 5.. The Government of the Union of Soviet Socialist Republics is being informed of this entrustm ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... how the terms of contract between the Union of India and the appellant. Both sides for this purpose relied upon some correspondence and invoices which are on record. Mention in this connection may be made to a communication which is in the form of a corrigendum to the Ministry's letter regarding "on account" payments to H.A.L. for MIG aircrafts, the letter dated 28th July, 1970, from the Under Secretary to the Government of India, Ministry of Defence, to the Chief Accounts Officer, High Commission for India in U.K., and the Chief Accounts Officer, Embassy of India in Washington, on the subject of "procurement of bought out items against the requirements of I.A.F. for 1st and 2nd line servicing", which dealt with the procedure sanctioned by the Government of India for the purpose of "avoiding two customers, viz., Hindustan Aeronautics Limited and the Indian Air Force, going to the same supplier abroad for the same items", the letter dated 20th December, 1971, from the Under Secretary to the Government of India, Raksha Mantralaya, Raksha Utpadan Vibhag, written to the General Manager of the Nasik Division of the appellant, the letter of 28th April, 1969, on the subject of "'on accoun ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ich was a branch of H.A.L. appeared to be inconsistent with the sanction order. He had further observed that MIG engines were delivered to Nasik Division whereas the invoice was raised and payment received from the Government of India. The purpose of giving physical delivery, according to the Assistant Commissioner, of the MIG engines to Nasik Division was for the purpose of fitting in the aircrafts. In that event, according to the Assistant Commissioner, Nasik Division became the custodian or the trustees of the MIG engines for which the price had already been paid to H.A.L. The Assistant Commissioner concluded that the property in the engines passed to the Government of India and not to H.A.L., Nasik Division. He had further observed that the break-up of the cost was towards the material cost, labour cost and sundry direct charges. The total cost came to Rs. 68,58,724.36. The further break-up of the total cost of Rs. 68,58,724.36 was imported materials, indigenous material and MCH freight, etc., labour cost and sundry direct charges. Apparently the cost of the material both imported as well as procured locally had been charged in the bill. According to the Assistant Commissioner, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... several correspondence which, according to us, indicate that the property in the aircrafts in the equipments and the materials had always been with the Government. The materials imported under the licence or procured indigenously for the manufacture were always and had always remained the property of the Government. The appellant had no property, in any part thereof, and had no right to dispose of or disposal over these materials and spares. These had to be regulated by the procedure envisaged in the agreement between the parties. The test by which these transactions should be judged in deciding whether this was a works contract or a contract of sale of any part of the material has been emphasised in several decisions of this Court. Some of these principles have been reiterated in the decision of Hindustan Aeronautics Ltd. v. State of Karnataka in Civil Appeal Nos. 1386-91 (NT) of 1977 of this Court. Since reported at page 314 supra. As emphasised by this Court, there is no rigid or inflexible rule applicable alike to all transactions which can indicate distinction between a contract for sale and a contract for work and labour. But the tests indicated in the several decisions of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... transfer of the aircrafts to the Nasik Division for the purpose of completion of the job and the making of the invoices was a matter of accounting and carrying out the job of entrustment. As had been emphasised by this Court, that the primary difference between a contract for work or service and a contract for sale of goods is that in the former there is in the person performing or rendering service no property in the thing produced as a whole notwithstanding that a part or even the whole of materials used by him may have been his property. In the case of a contract for sale, the thing produced as whole has individual existence as the sole property of the party who produced it some time before delivery and the property therein passes only under the contract relating thereto to the other party for price. This cannot be said to be in respect of any of the items involved in these transactions. These transactions were carried out in implementation of the entrustment job for the manufacture by H.A.L. and all payments and actions taken in this behalf were on behalf of the Government of India. We are therefore of the opinion that the Tribunal was in error in concluding that there was sa ..... X X X X Extracts X X X X X X X X Extracts X X X X
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