DWARKA PRASAD, J. -
(1.)- This is a reference made by the Board of Revenue for Rajasthan at Ajmer, referring to this Court a question of law arising out of its order dated June 19, 1970, as directed by this Court under Section 15 (3-A) of the Rajathan Sales Tax Act, 1954 (hereinafter referred to as "the Act" ). The Board of Revenue has referred the following question to this Court for its opinion :- "whether on the facts and in the circumstances of the case, the applicant can be said to be a 'dealer' within the meaning of Section 2 (f) of the Rajasthan Sales Tax Act, 1954 for the purposes of the present controversy?"
(2.)THE assessee firm M/s Sunderdass Jindal and Co. Suratgarh entered into a contract on October 31,1964 with the Government of Rajasthan for manufacture and supply of bricks and tiles to the State Government for use in the construction of the Rajasthan Canal. A tender notice was published by the Executive Engineer, Rajasthan Canal Project, III Desert Division, Suratgarh, inviting sealed tenders on prescribed forms from experienced kiln contractors, for the manufacture and supply of 256 lacs pucca tiles and 55 lacs pucca bricks at Suratgarh for the use in the construction of the Rajasthan Canal, within the specified time. THE assessee's tender was found to be lowest and after approval by the Chief Engineer, Rajasthan Canal Project, the Executive Engineer informed the assessee firm that its tender for manufacture and supply of bricks and tiles at Suratgarh was accepted and the assessee was directed to start work immediately. An agreement was also entered into between the assessee firm on the one part and the Executive Engineer, on behalf of the Governor of the State of Rajasthan, on the other part. THE coal and slack coal was agreed to be supplied to the Contractor by the State Government and the price thereof was also agreed to be adjusted from the running bills. THE department also agreed to supply water to the contractor from the canal for use in the manufacture of bricks and tiles on payment of nominal price. We shall presently refer to the relevant terms and conditions of the contract.
After the completion of the contract, the assessee firm submitted an application before the Commissioner of Sales tax, Rajasthan, Jaipur, under Section 12-A of the Act, requesting the Commissioner to determine the question as to whether the assessee was a 'dealer' within the meaning of Section 2 (f) of the Act. It was submitted on behalf of the assessee firm that it was not a 'deiler' as the contract was one for work and labour. The case of the assessee firm was that it had executed the work of manufacture and supply of bricks and tiles according to the contract entered into with the State of Rajasthan The case of the assessee was that all the materials necessary for the manufacture of tiles and bricks were supplied by the State Government under the agreement, including earth, coal, water and site for brick kiln. The case of the assessee further was that he only provided labour, for the manufacture of bricks and tiles according to the specifications provided by the State and that the ownership of the materials and the finished goods always remained vested in the State Governrnent. The Additional Commissioner, Sales Tax, Rajasthan, Jaipur, by his order dated August 31, 1968 held that the contract entered into by the assessee firm with the Government was for the supply of pucca bricks and tiles for valuable consideration and as such the assessee was a 'dealer' within the meaning of the Act, so far as the contract work was concerned.
Thereafter the assessee firm filed a revision petition before the Board of Revenue for Rajasthan at Ajmer The Board of Revenue by its order dated June 19, 1970 agreed with the Additional Commissioner and held that the contract entered into by the assessee firm with the State Government was for sale of bricks and tiles, in the course of business of a contractor and as such the assessee was a 'dealer' within the meaning of Section 2 (f) of the Act. The assessee then filed an application under Section 15 (1) requesting the Board of Revenue to make a reference about the question as to whether the assessee was a 'dealer' to this Court. But the Board of Revenue failed to make a reference within the prescribed time. Therupon, the assessee firm moved this Court under Section 15 (3a) for issuing a direction to the Board of Revenue to refer the question of law arising out of its order to this Court. This Court, by its order dated April 3, 1972 held that a question of law does arise out of the order of the Board of Revenue dated June 19, 1970 and the Board was directed to state the case and refer the aforementioned question to this Court for its answer.
Now, a dealer, whose turnover in the previous year in respect of sales or supplies of goods exceeds the specified limit, is liable to pay tax under the Sales Tax Act on his taxable turnover. The expression 'dealer' has been defined in Section 2 (f) of the Act as under:- " (f ).- "dealer" means any person who carries on the business of buying, selling, supplying or distributing goods, directly or otherwise, whether for cash, or for deferred payment, or for commission, remuneration or other valuable consideration and includes- (i) a local authority, a company, an undivided Hindu family or any society (including a cooperative society), club, firm or association which carries on such business; (ii) a society (including a co-operative society), club, firm or association which buys goods from, or sells, supplies or distributes goods to, its members; (iii) a commission agent, a broker, a deleredre agent, an auctioner, or any other mercantiel agent, by whatever name called, who carries on the business of buying, selling, supplying or distributing goods on behalf of any principal; (iv) a casual trader. " The assessee would be a 'dealer' if the transaction or contract is one of sale of goods, as asserted on behalf of the department and as held by the Board of Revenue. On the other hand, the case of the contractor assessee firm is that all materials, including earth from which the bricks and the tiles were made and coal used for burning them and also water, were supplied by the State and the contractor was only required to use his labour and skill in converting the State owned material into bricks and tiles and as such the contract was not one for sale of goods but it was a contract for work and labour.
It is well settled that whether a particular transaction is a contract for sale or a works contract depends upon the true construction of all the terms and conditions of the agreement, depending upon the intention of the parties executing the contract and the surrounding circumstances. The contract with which we are concerned, is contained in the tender and conditions of the contract for manufacture and suppiy of bricks and tiles entered into by the parties. The conder on acceptance by the competent authority constituted the contract between the parties. The tender was for the supply of 55 lacs pucca bricks and 256 lacs pucca tiles at Suratgarh, burnt with the government coal at the site of the kila at specified rate per thousand accepted bricks and tiles. Clause 8 of the tender previded that all taxes, octroi and royalty etc. levied or payable under any rule or regulation by or to the State Government or to any local authority shall be borne by the contractor. It has also been provided in the agreement that the government shall not bear any loss nor be liable for compensation for a any loss or damage occuring to the contractor during the manufacture on account of any natural calamity such as rain, storm, floods or any other mishap. The contractor was required to deposit an earnest money with the tender for the due and faithful performance of the contract and in case of acceptance of tender, the earnest money was to be merged in the 10% amount retained by the State Government during the currency of the contract, as security for the due and faithful performance of the contract, until final settlement of accounts. Clause (2) of the contract provided that the land required by the contractor for the site of brick kiln, sheds and like purpose connected with the contract would be provided rent free by the Government. The Executive Engineer would select the land. The contractor was to make his own arrangements for water supply, but in case water was supplied to him from irrigation channel and the government agreed to supply the same, then for the water thus supplied to the contractor he would be charged. 50p per thousand bricks and tiles moulded. The bricks and tiles, which shall be supplied by the Contractor, shall be of good quality, pucca, thoroughly and equally burnt, regular and uniform in shape and of specified size. The contractor was to prepare his own moulds of bricks and tiles. Clause (4) of the agreement provided that the quantity of slack coal issued to the contractor, if not utilised by him for the specific purpose for which it was issued, as stipulated in the agreement, would be returned by him or the contractor would make payment of the cost of such coal at double the rate at which the coal was supplied to him. The slack coal supplied by the State Government to the contractor would be made available at the rate specified in the contract and the price thereof would be realised in full, from the running payments made to the coniractor in accordance with the terms of the agreement. It was also agreed to in clause (4) that the contractor shall not sell or remove any rejected out-turn of the kiln, without permission of the Executive Engineer in writing. If any material is not required by the Government, the contractor shall not remove or sell the same on the completion of the contract and if any material is not required by the Government, the same may be released to the contractor with permission of the Executive Engineer and the contractor would be liable to make payment to the State Government @ Rs. 1. 25 per thousand bricks or 100 cubic feet bats. Clause (7) of the agreement authorised the Executive Engineer, at any time, before the bricks or tiles were burnt, to destroy any material which in his opinion was improperly moulded. Any bricks or tiles not coming upto specifications but offered for acceptance of pucca bricks and tiles, would be the absolute property of the State Government and the contractor would have no right to demand any payment whatsoever in respect of sale. The Executive Engineer was to supervise the work of the contractor and of manufacture work executed in pursuance of the agreement shall be open to inspection and supervision of the Engineer-incharge and his subordinates. Clause 11 of the agreement provided that if the government at any time took over any imprefect, oversized or undersized bricks, the same shall be paid for at the specified rates.
(3.)THE distinction between a contract for sale of goods and a contract for work and labour is that in the case of the former, the main object is a transfer of property in delivery of possession of chattel to the buyer.
In Hels bury's Laws of England, (3rd Edition) Volume 34, the following test has been laid down for deciding whether a contract for sale of goods or for labour supplied? 'was it the intention of the parties in making of the contract that a chattel should be produced and transferred as a chattel for consideration. "
Benjamin, in his Treatise on the law of "sale of personal property" (8th edition), laid down the following propositions at page 167: - "1. A contract whereby a chattel is to be made and affixed by the workman to land or to another chattel before the property therein is to pass, is not a contract of sale, but a contract for work, labour and materials, for the contract does not contemplate the delivery of a chattel as such. 2. When a chattel is to be made and ultimately delivered by a workman to his employer, the question whether the contract is one of sale or of a bailment for work to be done depends upon whether previously to the completion of the chattel, the property in its materials was vested in the workman or in his employer. If the intention and result 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 deliver 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 employee when added to the workman's materials vest in the workman by accession. 4. The fact that the value of the materials supplied by one of the parties exceeds, the value of the materials supplied by the other, does not conclusively prove that the more valuable are the principal materials. "