SIKRI - (1.) IN this appeal by certificate granted by the High Court of Mysore the only question involved is whether the delivery by the respondent - Hindustan Aeronauties Ltd - hereinafter referred to as the assessee - to the Railway Board of railway coaches model 407, 408 and 411 is liable to sales tax under the Central Sales Tax Act.
(2.) THE Commercial Tax Officer, by assessment order dated 28/03/1964, in respect of the assessment year 1958-59, included the turnover in respect of the supply of these coaches. THE Sales Tax Officer rejected the contention of the assessee that there was no sale involved in the execution of the works-contract in view of certain decisions of the High Courts; e.g., Mckenzies Limited v. State of Bombay, (1962) 13 STC 603 (Bom) and Jiwan Singh v. State of Punjab, (1963) 14 STC 957 (Punj). In the appeal, the Deputy Commissioner of Commercial Taxes confirmed the order. In revision the Commissioner of Commercial Taxes also came to the same conclusion. He observed. ''The contracts specifically mentioned that the under-frame shall always remain the property of the Railway Board. On the other hand, the order placed with the assessee company here was for the ''manufacture and supply'' of railway coaches. The payment to the assessee company is specifically referred to as 'price'. The conditions normally included in contracts for works are absent in this order.'' He further observed: ''.... I would like to reiterate here that even the actual contract is for manufacture and supply of rail coaches. There is no mention that the rail coaches are to be constructed on the underframes of the indentor... If it was really a works contract the underframes would have been made available been made available for construction instead of being ''supplied free of cost'' and the indentor's lien on them would have been made clear. The plain meaning of the contract is that the underframes were transferred to the assessee company free of cost by the Railway Board and that after construction of rail coaches on them, the rail coaches were sold to the Railway Board at the agreed price. The agreement does not also contemplate any inspection in the course of execution as would normally be provided for n a works contract. The only inspection is after completion and at Perambur.'' He thought that the case of the assessee in respect of model 411 railway coaches was worse. Regarding the financial arrangement between the Railway Board and the assessee, he observed: ''The Railway Board made only advance payments for purchase of materials and did not itself procure the material and supply them to the assessee company. The condition that the materials became property of the Railway Board as and when purchased is only for purposes of providing adequate security for the advance. In the circumstances, the materials can be deemed to be hypothecated to the Railway Board and the advance payments are really part payment of the final price. The transaction relating to Rail coaches of model 411 is clearly a sale.'' He, therefore, confirmed the appellate order of the Deputy Commissioner. The assessee then took an appeal to the High Court of Mysore under S. 24 (1) of the Mysore Sales Tax Act read with S. 9 (3) of the Central Sales-tax Act. The High Court was not satisfied with the material on record and directed that a report be sent on three points, viz: ''(I) Whether and if so to that extent the assessee has drawn advance payment from the Railway Board in respect of the material utilised for completing the contracts in question; (ii) Whether any material, in respect of which no advances have been drawn, has been utilised by the assessee for completing the contracts; and (iii) Whether the assessee has used for completing the contracts any material completing the contracts any material not specifically procured for the purposes of completing the contracts.''
(3.) THE Commercial Tax Officer submitted his report, and certain extracts may be reproduced below: ''My findings revealed that as and when they purchased materials, they sent to the Railway Board ''an invoice'' accompanied by a list of the details regarding the materials purchased. 90 per cent of the value of these materials was then paid to the company after inspection of the materials by the board's representative. Invoice No. 31009 of 15-10-1956 is obtained as a sample. This invoice shows that materials for the value of Rs. 2,60,374-122-0 were purchased by the company for 407 model coaches. THE details of the materials are given in list attached to the invoice. THE invoice and the list were sent to the board with a covering letter dated 15-10-1956 asking payment of Rs. 2,34, 517-4-0 being 90 per cent of the invoice amount. THE amount of this invoice is included in the Board's remittance note No. 1290 of 30-10-1956 and a cheque was issued to the company for the total of several such invoices. THE amount of the cheque received on 3010-1956 was Rs. 22,90,7190.0.'' He concluded: ''(1) It is not possible to specify the exact amount received from the board as advance payments. It is said that the construction was spread out more than one year and a running account was maintained showing the debits and credits for the coaches. (2) It is said that no materials, for which advance was not drawn, was utilised for building the coaches. (3) It is not possible to find out whether any materials not specifically procured for constructions of coaches were used. But it is said that there is no possibility of any other materials being used for this construction. THE constructions are said to be done at particular shed which is separately located. No other work is under taken in this section. All the materials procured for constructions of coaches are said to be kept separately in this section alone. Materials not connected with this work are not mixed up with the materials in this section. Separate stock registers are maintained for this section. Receipts and issues of materials for the constructions of coaches are being accounted for in this register under code numbers.'' The High Court allowed the appeal and set aside the order including the turnover relating to the construction of railway coaches, models 407, 408 and411. Facts found by the High Court and as they appear to us are as follows: On 3/02/1955, the Ministry of Railways wrote the Hindustan Aircraft Ltd. regarding the coaching programme 1955-56. The letter reads: "In order to book your capacity, construction of the following is planned on your works against the 1955-56 R. S. P. JUDGEMENT_395_1_1972Html1.htm The intention of this intimation is to facilitate such arrangements as you may find necessary for providing for materials and for planning capacity for the stock in question. You should therefore this as a firm booking of your capacity.'' ;