TMI Blog1954 (4) TMI 30X X X X Extracts X X X X X X X X Extracts X X X X ..... aces in South India. Their business consists mainly of execu- tion of contracts for construction of buildings, bridges, dams, roads and structural contracts of all kinds. The important customers of the com- pany are the Central and State Governments but there are also some private parties. In addition to the said business, they also carry out sanitary engineering contracts and sell sanitary wares and other sundry goods. To facilitate the execution of their works, which are spread all over the State, and to provide amenities to the workmen, they also distri- bute to the workmen food-grains and debit the cost thereof against the wages; which they have to pay to them. They also run canteens for the supply of food-stuffs to their employees at their work-spots but they derive no profit either from the sale of the food-grains or food-stuffs. In the case of most of the contracts, the controlled commodities such as steel and cement are supplied by their employers, while the non- controlled materials and work and labour and technical skill for the cconstruction work are provided by the company. In the case of contracts with the State and Central Governments, they sometimes act as their proc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in the meaning of its provisions and, therefore, they could not be assessed to tax. It was also urged that the supply of foodgrains to the workmen was only for their convenience and was an ameliorative activity of the company for the welfare of the workmen and that they did not make any profit by supplying foodgrains to the work- men. These contentions were negatived by the Tribunal. The legislative power of the Province to enact the General Sales Tax Act to provide for the levy of a general tax on the sale of goods in the State of Madras was derived under the Government of India Act, 1935, the Constitution Act then in force. Under Section 100, sub- section (3), the Provincial Legislature is empowered to legislate for the Province with respect to any of the matters enumerated in List II in the 7th Schedule to the Act, and item 48 in that list is taxes on the sale of goods and on advertisements . The corresponding item in List II (State List) of the Constitution of India is item 54, the language of which is somewhat different. Item 54 is taxes on the sale or purchase of goods other than newspapers. Before the Madras General Sales Tax Amendment Act (XXV of 1947) works contracts ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed as Exhibit A. The contract no doubt does not relate to the assessment year but the printed conditions in that form are taken as typical of the other cases. The important provisions of this agreement are: (1) In consideration of the payment of the said sum of Rs.---------- or such other sum as may be arrived at under the clause of the standard preliminary specification relating to payment on lump sum basis or by final measurement at unit prices, the contractor will, upon and subject to the said conditions, execute and complete the works shown upon the said drawings and described in the said specifications and to the extent of the probable quantities shown in schedule A with such variations by way of alterations of, additions to, or deductions from, the said works and method of payment therefor as are provided for in the said conditions. The agreement related to special repairs to the grand anicut canal and was with the State Government. Schedule A attached to the agree- ment gives the schedule of rates and approximate quantities. There are two provisions in this schedule: (a) The quantities here given are those upon which the lump sum tender cost of the work is based, but t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of work may be revised if there were any alterations, omissions, deductions or additions. The main argument on behalf of the assessees by their learned advocate was that works contracts of this nature are not contracts of sale of goods and that the Legislature of the Province had no power to levy sales tax treating them as involving sale of goods and bringing them within the ambit of the General Sales Tax Act. The legislative power under item 48, it was contended, extended only to enact a law for levy- ing a tax on a transaction known to law as sale of goods and on no others. The Legislature had no power to include within the definition of sale a transaction which is not a sale and thereby extend its power to tax transactions, which are wholly outside the legislative field. This argument necessitates an examination of the import and the fundamental essentials of a transaction, which may legitimately be described as a sale of goods in order to determine the extent and the limit of the legislative power of the Province and also makes it obligatory to analyse and see whether building contracts or contracts of the nature, which were carried out by the assessees during the assessme ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ales, being tax laws are subject to strict construction. Vide Crawford on the Construction of Statutes, page 738. The same author, while dealing with the source from which the legislative intent should be gathered, points out that the intention should be ascertained primarily from the language employed in the statute itself and not from conjectures aliunde. In other words, before a Court can resort to any other source for assistance, it must first seek to find the legislative intention from the words, phrases and sentences, which make up the statute subject to construction. If the meaning of the language of the statute is plain, then, according to the rule announced in innumerable cases, there is really no need for construction as the (1)[1939] F.C.R. 18; 1 S.T.C. 1. (2)[1936] A.C. 578 at 614. legislative intention is revealed by the apparent meaning, i.e., the mean- ing clearly expressed by the language of the statute. In this case, the statute is given a literal interpretation. It is interpreted to mean exactly what it says. At page 758 he adds: In this connection, it should also be noted that the statute should be construed according to the legislative intent existing therein ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ns as they were when the instru- ment was framed and adopted. The statesmen and lawyers of the convention, who submitted it to ratification of the conventions of the thirteen states, were born and brought up in the atmosphere of the com- mon law, and thought and spoke in its vocabulary. Bearing these principles in mind, we have to construe the relevant entry, item 48 of List II of Schedule VII, and give effect to the plain words employed in the expression taxes on the sale of goods . It must be remembered that the Constitution Act was enacted by the British Parliament and the draftsmen and the Parliament must have been well aware that the expression sale of goods had acquired a legal import by that time, and it is legitimate therefore to presume that the expression was used in the sense in which it was understood by English lawyers and also in India. The draftsmen must have intended to define the power of the Legislature to tax only the transaction of sale of goods, which was understood in law as meaning and as constituting those com- posite series of acts beginning with an agreement of sale and ending with transfer of property for a price, which constitute sale of goods. That ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d by Justinian. By Justinian's time, therefore, it was decided finally that price was an essence of a contract of sale, and barter was relegated to the class of real contracts. In order to constitute a sale as defined in the English Sale of Goods Act, which is followed in the Indian Act, two things are necessary: (i) an agreement to sell, i.e., an agreement to transfer the property in goods to the buyer for a price, and (ii) an actual sale by which the property in the goods passes from the seller to the buyer. Then it becomes a sale of goods. Benjamin on Sale, 8th edition at page 1, refers to the defi- nition of contract of sale in Section 1 of the Sale of Goods Act, and according to the learned author, in order to constitute a sale, there must be (1) an agreement to sell, by which alone property does not pass and (2) an actual sale by which the property passes. The elements of the contract are, as stated at page 2, (1) parties competent to contract, (2) mutual assent, (3) a thing, the absolute or general property in which is transferred from the seller to the buyer, and (4) a price in money paid or promised. In view of these essential elements of a transaction of sale, gift ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... al growing crops) and things attached to or forming part of the land, which are agreed to be severed before sale or under con- tract of sale. The Government of India Act, Section 311, gives an inclusive definition of goods, as including all materials, commodities and articles. The transaction denoted by the sale of goods, therefore, as commonly understood under law, is that which is defined in Section 1 of the English Sale of Goods Act and Section 4 of the Indian Sale of Goods Act. The essential element of a sale of goods is the transfer of the property in the goods to the buyer for a price. It is a consensual act, as it requires an agreement to transfer property in the goods for a price. The goods may be existing goods or future goods. They may be ascertained goods or unascertained goods, but in any case, the transfer of the property con- templated is in the goods, which are the subject-matter of the contract. The power, therefore, of the Legislature and the field, which is open to the Legislature, could not extend to anything other than a transaction of sale, which is well-known to lawyers. It does not thereby mean that the Legislature had no power to enact provisions which are i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... le of goods and define the limits of the legislative power con- ferred thereby. As the power to tax is conferred upon an executed contract of sale and not on a mere agreement to sell, i.e., an executory contract, both the High Courts held that a provision imposing a tax on mere agreements to sell was invalid and ultra vires the Legislature. Vide Budh Prakash Jai Prakash v. Sales Tax Officer(3) and Bharat Sabai- grass Ltd., Calcutta v. The Collector of Commercial Taxes, Orissa(4). In the latter case, at page 458, the learned Judges observed: (1)[1939] A.C. 468 at 482. (3)[1952] 3 S.T.C. 185. (2)A.I.R. 1939 P.C. 53. (4)[1952] 3 S.T.C. 453. There seems to be enough force in the contention that a mere con- tract for sale cannot constitute a sale. It being executory in character, pure and simple, no property or ownership passes under it. The sale, on the other hand, is an executed contract where complete ownership passes. The second proviso in Section 2(g) of the Orissa Sales Tax Act seems to be ultra vires. Entry No. 48 in List II of Schedule VII of the Government of India Act, 1935, running as 'taxes on the sale of goods and on advertisements' is a provincial subject. The Pr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s the subject-matter of consideration in a number of cases in England, and the question arose whether such contracts are contracts for the sale of goods or contracts for work and labour and materials furnish- ed. The question became important as in the case of a contract of sale of goods writing is required by Section 4 of the English Sale of Goods Act, if the contracts are for the sale of any goods of value above a certain amount. There was also a similar requirement under the Statute of Frauds, which deals with contracts not to be performed within a year. Benjamin on Sale discusses elaborately the cases on the subject at pages 156 to 161 and again at pages 352 to 355. He formulates the question at page 352 thus: It is necessary now to revert to this series of decisions on another point, namely, the effect of such contracts in passing property in the materials provided and the parts prepared for executing them but not yet affixed to the ship or vessel or other corpus. The discussion begins with Tripp v. Armitage(1), Wood v. Bell(2), Seath v. Moore(3) and Reid v. Macbeth(4), and the discussion is concluded at page 355 thus: It follows from this decision, Reid v. Macbeth(4), that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of course, is subject to any special stipulations in the contract to build. If the parties intended that pro- perty in materials should pass at an earlier stage that of course governs the rights between the parties. If the material is supplied by the other party to the contract, or if on his account the builder purchases the materials, the contract in either event will be a mere contract for labour and work and not for sale of the material. The difficulty arises only in cases in which the material also is supplied by the contractor along with labour and work. In such a case, the general rule is as stated by Benjamin based upon the authorities Seath v. Moore(4) and Reid v. Macbeth and Gray(5). Reid v. Macbeth(5) related to a contract to build a ship. The contract contained this stipulation: (4) The vessel as she is constructed, and all her engines, boilers, and machinery, and all materials from time to time intended for her or them, whether in the building-yard, workshop, river, or elsewhere, shall immediately as the same proceeds become the property of the pur- chasers, and shall not be within the ownership, control, or disposition of the builders, but the builders shall at all ti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... this judgment includes contracts for the construction of dams, road work, construction of bridges etc., which were the contracts which the assessees entered into with the State and Union Governments as well as private parties. These contracts are always considered in law as entire and indivisible contracts in the sense, that the complete fulfilment of the promise by one party is a condition precedent to the right of the other to call for the fulfilment of any part of the promise by the other. They have been classified by Hudson on Building Contracts into four categories having regard to the mode by which the consideration payable was to be ascertained under the con- tracts. The first and the most simple form is a contract to do the whole work, the consideration for which is the payment of a lump sum; the second is a contract to do the whole work in consideration of the pay- ment of different sums for different parts of the work; the third is a contract to do the whole work, no mention of the price being made; and the fourth is a contract to do the whole work for a price to be ascertained for example by a schedule of price. The most common forms of these are the first and the last ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ie contract between those who enter into contracts for doing work and supplying materials, there is nothing to render it either illegal or absurd in the workman to agree to complete the whole, and be paid when the whole is complete, and not till then: and we think that the plaintiffs in the pre- sent case had entered into such a contract. Had the accidental fire left the defendant's premises untouched, and only injured a part of the work which the plaintiffs had already done, we apprehend that it is clear the (1)[1867] L.R. 2 C.P. 651. (3)3 Burr. 1592. (2)3 B. Ad. 404. plaintiffs under such a contract as the present must have done that part over again in order to fulfil their contract to complete the whole and put it to work for the sums above-named respectively. In conclusion his Lordship observed: The plaintiffs, having contracted to do an entire work for a specific sum, can recover nothing unless the work be done, or it can be shown that it was the defendant's fault that the work was incomplete, or that there is something to justify the conclusion that the parties have entered into a fresh contract. In Reeves v. Barlow(1), the contract was a building contract and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... them and laid down in the Sale of Goods Act. The ultimate result of executing a contract is to bring into existence immovable property and not movable property, and the contract therefore does not become a contract relating to sale of goods but is only a contract to build. Our attention has also been drawn to the decision in Clark v. Bulmer(1), which related to a contract to build a steam engine, which was also a contract for work, labour and supply of materials. Baron Parke considers the question at pages 466 and 467 and observes: Whenever a simple contract is executed, and terminates in a debt, which it is the duty of the defendant to pay instanter, it is, no doubt, the subject of an indebitatus count; but the executed contract must be described properly; and the question here is, whether it is proper to describe this as a debt for a main engine, or goods sold and delivered. We think not. The engine was not contracted for to be delivered, or delivered as an engine, in its complete state, and afterwards affixed to the free- hold; there was no sale of it, as an entire chattel and delivery in that character; and therefore it could not be treated as an engine sold and delivered. No ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... m of English law quicquid plantatur solo solo cedit does not apply to India, nevertheless the question, whe- ther a chattel is embedded in the earth so as to become immovable pro- perty, is decided by the same principles as those which determine what constitutes an annexation to the land in English law. (See also Clas- sical Roman Law by Fritz Schulz at pages 364 and 365 where he dis- cusses inaedificatio). The decision in Vallabdas Narainji v. Develop- ment Officer, Bandra(1), cited by the learned Advocate-General, does not conflict with any of these principles. In that case, the Government officials, it was found, were not mere trespassers, but, under a colour of title, they erected a building bona fide believing in their right to do so. It was, therefore, held that title to the superstructure did not pass to the owner of the land, and that the superstructure continued to belong to the Government. The Judicial Committee referred to the principle well established in England, that if a stranger builds on the land of another, although believing it to be his own, the owner is entitled to recover the land with the building on it, unless there are special circumstances. It was agreed b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ct and it is on that basis that the lump sum tender for the entire cost of the work was ac- cepted by the Government. The expression used is the quantities here given are those upon which the lump sum tender cost of the work is based . But the parties contemplated that it may be possible that certain alterations or omissions or additions may be required during the pro- gress of the work, and for that eventuality they provided that as per the schedule of rates the necessary adjustments in price fixed should be made either by addition or subtraction, calculating the amount on the basis of the schedule of rates. Cement and other materials were supplied by the Government. It is only the non-controlled materials that the contractor had to find himself for the purpose of the work. He does not purport to sell the materials under the contract, and it is not a contract for the sale of the materials. The ownership in the materials does not pass by reason of any agreement of sale by which the materials were agreed to be sold. On the face of the contract, therefore, it is difficult to come to the conclusion that the contract involves any element of sale of goods to justify the imposition of a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ve not been subject to any process of treatment resulting in an alteration of the form, nature or condition of the goods, were exempt from taxation. It was held that as the granite etc., were subjected to manufacturing process were not pri- mary products, which could be exempted from the tax under Section 20 (1)(g) of the Assessment Act. This decision does not throw any light on the question now in issue before us, as legislative power in Australia was not founded on transactions of sales of goods as under item 48 of List II. In Hornibrook (Pty.) Ltd. v. Federal Commissioner of Taxation(3), a specific (1)[1929] L.R. 52 Mad. 829. (3)[1939] 62 Com. L.R. 272. (2)[1936] 56 Com. L.R. 305. section in the Sales Tax Assessment Act provided that sales tax shall be levied and paid upon the sale value of goods manufactured in Australia by a taxpayer and sold by him or applied to his own use. In that case, the contractor constructed a bridge under contract with a highway company, which held a franchise for the erection of the bridge under the Tolls on Privately Constructed Road Traffic Facilities Act of 1931. The bridge was constructed on reinforced concrete piles driven into the bed of the se ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing regard to the terms of particular contracts, there may be an intention to pass the ownership in the materials for a price agreed upon between the parties, in which case such contracts might contain an element of sale of goods, but that is not the case here. If the amend- ments introduced in 1947 by the Provincial Legislature are intended to catch in the net of tax contracts of the nature with which we are con- cerned, we should hold that to that extent the amendments introduced are ultra vires of the Provincial Legislature as they had no power to tax transactions which are not sales of goods. We, therefore, think that the levy of tax on the assessees on the sum of ₹ 29,31,528-7-4 was not justified in law. It only remains to consider the second question, viz., whether the assessees are liable to pay tax on the value of the food-grains which they have supplied to the workmen. The question really turns upon the meaning to be given to the definition of dealer in the Act. Dealer means any person, who carries on the business of buying or selling goods. As observed already, the assessees supplied food-grains for the benefit of the workmen and recovered the cost of them by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... be understood in a restricted and commercial sense that the activity was with a view to earn profit. In Graham v. Lewis(1), the Court of Appeal in England had to con- true the expression carry on business occurring in the Mayor's Court (Extension) Act, 1857, (20 and 21 Vic. Chapter CLVII, Section 12). In construing the meaning of the expression carry on business Fry, L.J. stated at page 5 of 22 Q.B.D.: Now, I think that the expression 'carry on business' is not ordi- narily used in the sense of a person being busy or doing business merely. A butler employed to look after his master's plate and perform the other duties of his occupation may be a very busy man, but he could not be said to be carrying on business. A man who busies himself about science, the volunteer movement, or politics, though he may have a great deal of business to transact in respect of those matters, does not carry on business. I think that the expression has a narrower meaning than that of doing business or having business to do. In my opinion, it imports that the person has control and direction with respect to a business and also that it is a business carried on for some pecuniary gain. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the course of the business of the tea shop, cigarettes were sold to customers at the cashier's desk. It was complained that this was a breach of the restrictive covenant but the contention was negatived as the sale of the cigarettes was only an incidental part of the business of the tea shop and was not in any sense a breach of the lessors' covenant. This decision is only helpful in determining the main business of a per- son, whether an individual or a corporation, as distinguished from incidental business of such a person. That it is possible to have sales and purchases as incidental to non-commercial objects was recognised in Same v. Eccentric Club Ltd.(3). The Religious Tract and Book Society of Scotland v. Forbes(4), is a peculiar instance of a case in which one parti- cular transaction was held to be a business and the other was not. The Religious Tract and Book Society of Scotland, which was founded for the diffusion of religious literature, sold Bibles, etc., at a shop in Edinburgh and also sent out colporteurs, whose duty was to sell Bibles and to act as cottage missionaries. The sales at the Edinburgh shop earned profit but the colportage ended in loss. The combi ..... X X X X Extracts X X X X X X X X Extracts X X X X
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