A K RANGANATHAM Vs. GOVERNMENT OF TAMIL NADU

JUDGEMENT

(1.) THESE two tax cases have been filed under section 38 of the Tamil Nadu General Sales Tax Act, 1959 (hereinafter called the Act) and relate to the assessment years 1963-64 and 1965-66. For the assessment year 1963-64, the petitioners disputed the turnover of Rs. 5, 94, 244. 96 taxes at 2 per cent. on the ground that the receipt of that amount was towards works contract for the manufacture and supply of bricks by the petitioners to the high Pressure Boiler Plant Project (hereinafter referred to as the Project administration) at Tiruvarambur. On the same ground for the assessment year 1965-66, the petitioners disputed the liability to sales tax on a turnover of rs. 10, 51, 330. 27. For both these assessment years the Joint Commercial Tax officer, Mylapore Division, held that the amounts represented the value of the bricks supplied by the petitioners of the Project Administration and the transaction was a sale liable to levy of sales tax under the Act. The Appellate assistant Commissioner, Commercial Taxes, and the Sales Tax Appellate Tribunal confirmed the assessment. The question for consideration in these cases is whether the transaction envisaged by the contract entered into by the petitioners with the Project Administration for manufacture and supply of "second class common burnt clay building bricks" to the Project administration in terms of the contract in question is a sale or a works contract.

(2.) THE Project Administration called for tenders for the manufacture and supply of bricks at the project site. THE petitioners submitted tenders and the same were accepted. An agreement was entered into between the petitioners and the Project Administration on 10th April, 1963. As per that agreement, the petitioners manufactured standard bricks by taking clay from the project land, moulded the clay into bricks, burnt them with the coal supplied by the Project Administration and supplied the bricks and received the various amounts. THE question arising for consideration has to be determined on a consideration of the terms and conditions of the contract and in the light of certain principles laid down by courts. THE terms and conditions of the contract in the present case are to be found in the tender submitted by the petitioners, the letter of acceptance, the agreement executed by the petitioners (who are called contractors in the agreement), which takes with it the general conditions of contract for manufacture and supply of bricks, specification for "second class common burnt clay building bricks" and special conditions of brick burning, as part of the agreement. Some of the features of the contract are : the work is designated as "manufacturing and supplying second class common burnt clay building bricks of size 190mm X 90mm X 60mm at project lands at thogur-kilns Nos. 3, 4, 5 and 6".

(3.) THE terms of the contract which fell for consideration in that case before the supreme Court, though similar in many respects to the present case, differ in some of the important points. THEre was no clause in that case preventing the assessee selling the bricks to any other party. THE only requirement was that he should get the permission of the company. But in the case on hand, the bricks manufactured will have to be supplied only to the Project Administration and the rejected materials alone were permitted to be removed. In addition to this, we have the rights and liabilities of the parties with reference to the earth removed and the coal to be supplied. One other important factor, which has to be borne in mind and which distinguishes this case from all other cases, is the right of the Project Administration to control and direct the petitioners and its employees at all stages of the manufacture. In Krishnaswami rao v. State of Madras this court construed a similar contract entered into by an assessee with the Neyveli Lignite Corporation for the manufacture and supply of bricks of specified size and design at agreed rate at kiln site in the land placed at the disposal of the assessee by the corporation. This court relied heavily on the fact that the bricks at every stage of manufacture continued to be the property of the corporation and that the contract was a works contract pure and simple and was not a contract of sale of goods. A case very similar to the one on hand is the one decided by a Division Bench of the Gujarat High court in S. R. U. K. S. Mandal Ltd. v. Commissioner of Sales Tax THE learned judges have elaborately discussed the entire law relating to the subject and, after distinguishing the decision in Commissioner of Sales Tax v. Purshottam Premji (sic) held that the transaction in question was a works contract and not a contract for sale of bricks. In particular, the learned Judges relied on the facts that the Government in that case had agreed to provide the assessee with land for excavating soil for manufacture of bricks free of rent and without the liability for the payment of royalty or quarry charges, the liability to the government to take even inferior quality bricks, prohibition against selling any materials manufactured at site to any other party, the control of the government over the assessee and its employees in the matter of manufacture of bricks and the non-liability of the Government for any compensation or damages for foreclosure of the contract before it was executed fully. THE learned judges also held that "even if the property in the goods passed to the government on completion of the contract, by mere passing of the property, the contract would not be rendered into a contract for sale because the property passed not as a result of the contract of sale but as an incident of the contract of work and labour".