Bhargava, J. - (1.) This appeal under special leave granted by this Court arises out of proceedings for assessment of sales tax under the Bombay Sales Tax Act III of 1953. Messrs. Kailash Engineering Co (hereinafter referred to as "the respondent" was an engineering concern having their workshop at Morvi on the meter gauge Section of the Western Railway. They obtained a contract from the Western Railway Administration for construction of IIIrd class passenger coaches on certain conditions described as the conditions of tender. Under that contract which was reduced to writing and was described as an agreement, the respondent constructed three coaches and submitted a bill which was properly certified in accordance with the agreement by the Railway Administration on October 4, 1958. The net value of the work done by the respondent was certified at Rs. 1,22,035. After receipt of this money, the respondent wrote to the Additional Collector of Sales Tax requesting him under S. 27 of the Bombay Sales Tax Act, I953, to hold that this was a works contract, and that the transaction, in respect of which the respondent received the money, did not amount to a sale, so that no sales tax was payable under that Act. The Additional Collector held that two questions fell for determination before him:(1) Whether the transaction covered by the bill, dated 4th October 1958, is a sale and (2) if it is a sale, whether any tax is payable in respect of the same.
(2.) The Additional Collector answered both the questions in the affirmative against the respondent. The appeal before the Gujarat Sales Tax Tribunal failed; and there upon the respondent sought a reference to the High Court of Gujarat. The Tribunal referred the following question for the opinion of the High Court:- Whether on a proper construction of the agreement as a whole and its general conditions and specification, the work done and covered by Contract Certificates No. M/60(1)/BPRTN, dated 4th October 1958, for the performance of the works of building, erecting and furnishing 3 B.G. Coaches over the chassis supplied by the Railway is a works contrast not amounting to sale, or whether it is a transaction of sale." The High Court answered the question in favour of the respondent, holding that the transaction was a works contract carried out by the respondent and did not amount to a sale. Consequently, this appeal has been brought up by the State of Gujarat challenging the correctness of the decision of the High Court
(3.) The Tribunal, when dealing with the case, mentioned a few of the terms of the contract entered into between the respondent and the Western Railway Administration, and, though there was a provision in one of the clauses of the agreement 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 Tribunal held that the ownership in those materials never passed to the Railway because of the indication given by another clause which provided that on removal of contractor on rescission of contract, the Railway .Authorities would be entitled to take possessions and retain all materials. Tools, implements, machinery and buildings On this basis, the Tribunal held that, from the general conditions of the contract, it appeared that the ownership of the coach bodies only passed to the Railway when completed and handed over to the Railway, so that the contract was for supply of coach bodies. It was on supply, of these coach bodies that the respondent received the price of those bodies and thus received the amount subjected to sales tax as sale consideration for those bodies;