TMI Blog1996 (8) TMI 490X X X X Extracts X X X X X X X X Extracts X X X X ..... es of the size 30cm x 15cm x 5cm and bricks of the size 232cm x 11cm x 5cm at the site at the rates mentioned and on the terms and conditions set up in the contracts. The appellant, on February 25, 1988 received a notice under section 12 of the Rajasthan Sales Tax Act (for short, "the Act") from the Assistant Commercial Taxes Officer, Hanumangarh for the assessment years 1983-84 and 1984-85. The petitioner-appellant challenged these notices issued by the Assistant Commercial Taxes Officer, Hanumangarh, by way of filing S.B. Civil Writ Petition No. 605 of 1988 (Verma Construction Company v. State of Rajasthan). The petitioner-appellant, also, received a notice under section 12 of the Act on September 18, 1989 with respect to the assessment years 1985-86 and 1986-87 and challenging these notices he filed S.B. Civil Writ Petition No. 3943 of 1989 (Verma Construction Company v. State of Rajasthan). 3.. Both the writ petitions were opposed by the respondents. The learned single Judge, by his judgment dated April 22, 1992, dismissed both the writ petitions and held that the petitioner-appellant is a "dealer" and the transaction of supplying the bricks and tiles constitute the "sale" wh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... utual consent. To constitute "sale" there must be transfer of the title and possession of the property for a consideration, while in a "contract for work" there is no "sale" because the property did not pass for a price. The distinction between the "contract for the work and labour" and the "contract for sale" has been pointed out in Halsbury's Laws of England, Fourth Edition, Volume 41 (para 603 at page 557) in the following words: "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 the main object of which is the transfer of the property in, and the delivery of the possession of, a chattel as such to the buyer. Where the main object of work undertaken by the payee of the price is not the transfer of a chattel as such, the contract is one for work and labour. The test is whether or not the work and the labour bestowed end in anything 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 deter ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... act for work and use or supply of the material, though not accessory to the execution of the contract, is voluntary or gratuitous. In the last class there is no "sale" because though property passes, it did not pass for a price. Whether a contract is of the first or the second class, must depend upon the circumstances; if it is of the first, it is a composite contract for work while in a case, where it is of a second category, it is a contract for execution of the work not involving sale of goods. 12.. In State of Gujarat v. Kailash Engineering Co. (Pvt.) Ltd. [1967] 19 STC 13 (SC) the respondent constructed three coaches over the chassis supplied by the Western Railway administration under a contract with the latter and received money therefor. It was provided in the contract that as soon as the plant and materials were brought on the site where the coaches were to be constructed, the ownership in them would vest in the railway. The duty of the respondent was described throughout the contract to be that of constructing, erecting and furnishing coach bodies on the underframes supplied. At no stage did the contract mention that ready coach bodies were to be delivered by the respon ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to the Railway Board within the meaning of the Central Sales Tax Act, 1956? The Supreme Court held that "(i) 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 railway 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 service rendered by the assessee; (ii) that the fact that in the case of coach model 411 the wheelsets and underframes were not supplied free of cost did not make any difference". The Supreme Court further held that "the answer to the question whether a contract is a works contract or a contract of sale depends upon the construction of the terms of the contract in the light of the surrounding circumstances". 15.. In Sentinel Rolling Shutters Engineering Company Pvt. Ltd. v. Commissioner of Sales Tax [1978] 42 STC 409 (SC) the assessee entered into a contract for fabrication, supply, erection and installation of two rolling shutters in two sheds belonging to that company for a price which was inclusive of charges for "erection at site". The contract provided, amo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cing and overhauling the aircraft, their instruments and accessories which were sent to the appellant for those purposes, could be subjected to sales tax? The Supreme Court held that "the contract was to accomplish for the Government the servicing and maintenance of aircrafts of the Air Force and works required on visiting aircraft according to the specified standard. The Government undertook to supply the bulk of the materials and it was only because the aircraft had to be kept in readiness and there should be no delay in getting materials, that the contract provided for the appellant to carry on the works by manufacturing or buying the requisite materials in case of delay, the expenditure therefor being authorised by the Government's Deputy Financial Adviser. The expression "all items provisioned will be the property of the Government and will be issued on contract loan" indicated that though gathered and processed or manufactured by the appellant, the appellant would have no property in those goods and would not be able to dispose of or deal with them but they would be treated as the property of the Government. The fact that those materials were separately placed at cost plus 10 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Viswanathan [1989] 73 STC 1 (SC) the respondent-assessee entered into a contract with universities and other educational institutions in the country for printing question papers. The charges of printing, block-making, etc., and the value of the paper were given separately. The respondent paid sales tax on the value of the paper and the question before the Supreme Court was whether the taxable turnover should also include the printing and block-making charges? The Supreme Court held that "the contract in this case was one, having regard to the nature of the job to be done and the confidence reposed, for work to be done for remuneration and no liability to sales tax arose in respect thereof". 20.. Now, we take up the cases relied upon by the learned counsel for the Revenue. 21.. In Chandra Bhan Gosain v. State of Orissa [1963] 14 STC 766 (SC) the appellant was manufacturing and supplying 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 contention of the appellant was that the contract was only for labour or for work done and material found, and there was really no sale of any ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t of the State of Rajasthan for manufacture and supply of bricks and tiles to the State Government for the use in the construction of Rajasthan Canal. The earth was supplied free of cost by the State Government but the other raw material, etc., were to be arranged by the contractor. The Division Bench of this Court, therefore, held that the case was one for the sale of bricks and tiles manufactured by the assessee and as the assessee has entered into a contract for sale of bricks and tiles, he was a "dealer" within the meaning of section 2(f) of the Act. 25.. The cases relied upon by the learned counsel for the parties, which have been discussed above, lay down only a general principle pointing out the distinction between the "works contract" and the "contract for sale". The ultimate decision of the individual case turns upon the true interpretation of the contract entered into between the parties, the circumstances of the transaction, the object of the parties and the customs of the trade. Whether a contract is a "works contract" or a "contract of sale" depends upon the construction of the terms of the contract in the light of the surrounding circumstances. The court has to find ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of cost and in case of excess burning of the coal in baking the bricks, the same will be supplied by the department to the contractor at the issue rate. 29.. The terms and conditions of the contracts, thus, indicate that all the material used in the manufacture of the bricks and the tiles were supplied by the Government free of cost and belonged to the department. The contract was for manufacture and supply of the bricks and tiles and both the elements were two inseparable elements of the contract. Chattel is produced and transferred as a chattel. The bricks and the tiles manufactured and produced and the materials used by the contractor, in fact, even from the earlier stage and even during the process of manufacture, as per the terms and conditions of the contract, always remained the property of the State, i.e., the Rajasthan Canal Project. At no point of time it was the property of the contractor. Condition No. 5 of the terms and conditions of the contract, which deals with the selling of the rejected material and by-product by the department to the contractor at Rs. 120 per thousand of tiles, Rs. 100 per thousand of bricks and Rs. 50 per hundred cubic feet of broken material ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the bricks, free of cost. There was, also, a condition to the effect that the contractor shall have no right to sell the bricks or any other material manufactured at the site to a private party but a penal provision for charging of 10 per cent of the value of the material at the tendered rate was fixed if the manufactured article is sold by him to a private party. Except the land given free of cost, all other arrangements had to be made by the contractor; while in the present case all the materials used for the manufacture of bricks and tiles were supplied by the Government and remained the property of the Government. The ratio of this judgment is, therefore, not applicable to the present case. 33.. Similar is the case of Sunder Das Jindal and Company v. State of Rajasthan [1984] 56 STC 89 (Raj). In this case only the land for excavating the clay required for the manufacture of the bricks was supplied free of cost by the Government and the price of coal supplied to him was subject to the adjustment thereof in the running bills of the contractor. The water though supplied by the Government was also, charged. The contractor was responsible for making his own arrangements for the r ..... X X X X Extracts X X X X X X X X Extracts X X X X
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