TMI Blog1993 (2) TMI 291X X X X Extracts X X X X X X X X Extracts X X X X ..... 33.12. The applicant had posed further question as to whether transaction of receipt of cement from the Government in terms of the contract for use in the execution of the said work amounted to purchase of goods by the applicant within the meaning of the Sales Tax Act. The Deputy Commissioner of Sales Tax held that cement supplied by the Government in terms of the contract would not be considered as purchase of cement by the applicant. The applicant filed Appeal No. 23 of 1983 before the Gujarat Sales Tax Tribunal at Ahmedabad ("the Tribunal", for short). The Tribunal, by its judgment and order dated June 28, 1985, arrived at the conclusion that supply of tiles by the applicant to the Government on the basis of the contract amounted to sale of such tiles. The Tribunal further held that, in an application under section 62 of the Sales Tax Act, it was not open to it to determine the sale price and that the said contention was not canvassed before the Deputy Commissioner of Sales Tax. The Tribunal, therefore, dismissed the appeal. Against the judgment and order of the Tribunal, the applicant preferred an application for making a reference to this Court as provided under section 69 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y the department. It is further provided that the tiles, which did not conform to the specified test results, should be rejected and no payment would be made for those rejected tiles. (b) There is further condition that the applicant is required to take proper care in loading and unloading of the tiles to avoid damages and breakages. It further provides that the damaged blocks would be rejected. These terms specifically indicate that, till the tiles were manufactured, the ownership in the tiles remained with the contractor and after manufacture of the tiles they are required to be approved by the department for their purchase. The department is entitled to reject the same if they did not conform to the specified test results. For the said rejected tiles, the department is not required to make any payment. III. There is further term which provides that the Government was to supply cement for manufacturing tiles. It provides that cement should be supplied by the department in the standard jute bags on loose at the place and rate mentioned in the part showing position of supply of cement. Schedule "A" to the contract further provides as under: ------------------------- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... erred that it was works contract and not the contract for sale of tiles; (iii) the entire manufacturing process of tiles was prescribed and it was to be supervised by the Executive Engineer or his agent as per the terms of the contract. This would also indicate that it was a works contract; and (iv) the State Government was knowing that, as it was works contract, at the relevant time sales tax was not payable in respect of works contract. Therefore, condition No. 21 specifically provides that sales tax was not payable on the completed work of the contract. The learned advocate for the applicant also relied upon the decision of the Kerala High Court in the case of Construction Company v. State Kerala [1975] 36 STC 320 in support of his contention. Mr. Mehta vehemently submitted that the judgment and order passed by the Tribunal holding that the contract between the parties was a sale of tiles is justified considering the terms of the contract. He also referred to the decision of the Supreme Court in the case of Commissioner of Sales Tax v. Sabarmati Reti Udyog Sahakari Mandali Ltd. [1976] 38 STC 203. Dealing with the similar contention raised by the assessee in the case of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... poles at Kunnamkulam: that the poles, when manufactured, automatically became the property of the Board on whose behalf the work of manufacture was carried out by the assessee in execution of the contract and no element of sale of specific chattel was involved in the transaction; the consideration stipulated to be paid to the contractor was for the work which he had undertaken to perform and not by way of sale price of the poles to be produced and delivered by him. Therefore, in our view, the decision in the case of Construction Company [1975] 36 STC 320 (Ker) would not be of any assistance of the contentions which are raised by the learned advocate for the applicant. Mr. Pathak, learned advocate for the applicant, has further referred to the decision of the Supreme Court in the case of Hindustan Aeronautics Ltd. v. State of Karnataka [1984] 55 STC 314. In our view, in this decision also, the principle laid down is the same. The court has observed that 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 n ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t of the contract is to transfer for a price property in which the transferee had no previous property then the contract is a contract of sale. Where, however, the passing of property is merely ancillary to the contract for the performance of work such a contract does not thereby become a contract of sale. 3.. Accordingly- (i) Where the employer delivers to a workman either all or the principal materials of a chattel on which the workman agrees to do work, there is a bailment by the employer, and a contract for work and labour, or for work, labour and materials (as the case may be), by the workman. Materials added by the workman, on being affixed to or blended with the employer's materials, thereupon vest in the employer by accession, and not under any contract of sale. (ii) Where the workman supplies either all or the principal materials, the contract is a contract for sale of the completed chattel, and any materials supplied by the employer when added to the workman's materials vest in the workman by accession." The learned Editor has emphasised that where passing of property was merely ancillary to the contract for the purpose of the work, such a contract does not th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... executed for supply of tiles in form B-1 and it was not executed in form "D", and therefore, it indicates that it was a works contract, requires to be rejected, because a form in which the contract is executed is not a criterion for determining as to whether the contract was for supply and sale of the tiles or it was a works contract. As stated earlier, in such a contract, whether a particular transaction is contract of sale or works contract depends upon the true construction of the terms and conditions of the agreement between the parties and, therefore, the form in which the contract is executed would hardly be material for determining the nature of the contract. The learned advocate for the applicant further submitted that, as the main ingredient (cement) for manufacture of tiles was supplied by the department, inference can be drawn that the contract is works contract. As stated earlier, in the present case, no doubt, cement was supplied by the department, but it was supplied at the fixed rate on the condition that the applicant should not use cement for any other purpose. If it used, then it would be required to pay price of cement as well as additional amount as fixed ther ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... for general welfare could insist on compliance with certain beneficial legal measures and also insist on certain terms which will ensure efficient production of the material. Such terms do not negate the concept of a contract of sale of the goods which are ultimately manufactured. The terms in the present case indicate what type of sand the applicant was required to use and where it was to be stored; which machinery the applicant was required to bring; how much cement he was required to mix with the sand; size of mould; size of block and its curing. All these conditions, in our view, were incorporated to see that the tiles of a specific size were manufactured from proper material including cement in proper manner. The learned advocate for the appellant has also relied upon condition No. 21 which deals with payment of sales tax. We have referred to the said condition in the previous paragraph. It specifically provides that the rates quoted by the contractor shall be deemed to be inclusive of sales tax on all materials that he will have to purchase for performance of the contract. It also provides that no general or State sales tax on completed item of work of this contract is pay ..... X X X X Extracts X X X X X X X X Extracts X X X X
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