COMMISSIONER OF SALES TAX MAHARASHTRA STATE BOMBAY Vs. ARUN ELECTRICS

JUDGEMENT

(1.) THE respondents are dealers carrying on business in electric goods as electrical contractors and hold a registration certificate under the Bombay Sales Tax Act, 1959. In the course of their business they undertake contracts for electrical fittings and charge their customers consolidated rates for the materials consumed and the labour charges involved in carrying out the contracts. On the 13th July, 1960, they made an application to the Deputy Commissioner of Sales Tax, Bombay City Division, under section 52(c) of the Bombay Sales Tax Act, 1959, to determine whether the supply of materials consumed in carrying out the contracts of electric fittings undertaken by them would be treated as sales within the meaning of the Bombay Sales Tax Act, 1959, and whether they would be liable to pay any sales tax on them. To indicate the nature of their transactions with their customers they annexed along with their application a copy of the bill issued by them to one of their customers. The material contents of the said bill were as follows : -

(2.) AT the hearing of the said application the respondent contended before the Deputy Commissioner of Sales Tax that the transaction evidenced by the bill was purely a works contract which was one and indivisible and did not involve any sale of goods. It was also contended on their behalf that the materials supplied in the execution of the contract were affixed to the building and thus became a part of the immovable property at the time when the property in the said material passed on to the customer. They urged that the contracts entered into by them were similar to the contracts of building constructions, which the Supreme Court had held, were contracts of work not involving sale of goods. The Deputy Commissioner of Sales Tax did not accept these contentions which were put forward on behalf of the respondents. According to him, although there was a single invoice given by the respondents to their customers, the contract evidenced by the said invoice clearly consisted of distinct and severable contracts - one for the supply of goods and the other for the supply of work and labour; and so far as that part of the composite contract which consisted of the supply of goods was concerned it constituted a sale within the definition in the Bombay Sales Tax Act, 1959. He relied on the observations of the Supreme Court in the case of State of Madras v. Gannon Dunkerley and Co. [1958] 9 S.T.C. 353, to the effect that it was possible that parties might enter into distinct and separate contracts one for the transfer of materials for money consideration and the other for the payment of remuneration for the service and for the work done and where such was the position, there were really two contracts although there might have been a single instrument embodying them, and took the view that the present case fell in the category of such contracts and therefore involved a sale of goods so far as the supply of material was concerned. As to the other argument advanced before him, that the property in the goods did not pass as movables, but only after they had been fixed to the building and had become a part thereof, he held that it could not be said that the goods mentioned in the invoice were permanently fastened to the building so as to become a part and parcel of the immovable property, namely, the building. Nor had the applicants been able to establish that such was the case in the execution of the said contracts. According to the Deputy Commissioner, therefore, having regard to the terms of the contract between the parties and the manner in which the work was charged for as evidenced by the invoice submitted by the respondents, the transaction in question could not be regarded as purely a works contract in which no sale or supply of goods as chattels was involved. He accordingly determined under clause (c) of sub -section (1) of section 52 of the Bombay Sales Tax Act, 1959, that the transaction as evidenced by the bill supplied by the respondent was a sale within the meaning of section 2(28) of the Bombay Sales Tax Act, 1959, in so far as the supply of materials contained in the said bill was concerned.

(3.) NOW , whether a given contract is a contract of sale or a works contract must depend upon the terms of the contract and the intention of the parties. A transaction in order to be a sale must have all the necessary characteristics of a sale. As observed by the Supreme Court in State of Madras v. Gannon Dunkerley and Co. [1958] 9 S.T.C. 353, in order to constitute a sale, it is necessary that there should be an agreement between the parties for the purpose of transferring the title to goods which presupposes capacity to contract, that it must be supported by money consideration, and that as a result of the transaction the property must actually pass in the goods. Unless all these elements are present, there can be no sale. A works contract, on the other hand, is a contract where parties to the contract have contracted for the supply of work and labour by one party to the contract to the other. Where the transaction purely consists of the supply of goods for money consideration, it is clearly a sale of goods. Where, on the other hand, the contract is one purely for the supply of work and labour and no material is required to be supplied by the party to the contract, who has to supply work and labour, it is purely a works contract. Where the contract between the parties consists of the supply of material and also supply of work and labour, the difficulty often arises as to the true nature of the contract. It may either be a contract for the sale of goods or else it may be a contract for work or it may be a composite contract consisting of two separate and distinct parts - one for the supply or sale of goods and the other for work and labour. Taking a few simple illustrations : If A contracts to buy a coat made for him by B for a certain price, there is a contract for the sale of a coat between A and B, although the coat before it is delivered by B to A for the price, is required to be made by B out of the cloth and other material procured by B himself. It may be, on the other hand, a contract for the work, as for instance, A takes his manuscript to printer B and asks him to print and deliver a certain number of copies of the manuscript to him for a price with the paper and ink supplied by B; in such a case what is contracted for is the work and labour though in the execution of the contract material may have to be supplied. It may also consist of two separate and divisible parts one for the supply of material and the other for the supply of work and labour, as for instance, when A goes to a shop and gets a coat prepared for him and pays for the cloth and the other material required for the coat and also for the stitching charges. In this case, so far as the supply of cloth is concerned for the making of the coat, it is a sale of goods; and so far as the stitching charges paid are concerned, they are paid for work and labour. Whether a contract, which involves both supply of material and supply of work and labour, falls in any of the three categories mentioned must depend upon the facts of each case and the intention of the parties. In order to determine whether in a contract of this nature there is involved a contract for the sale of goods must depend, in our opinion, upon whether the parties to the contract have intended to sell the goods under the agreement between them and whether any property in chattels is to pass from the one to the other as chattels. The mere circumstance that a certain property in movables has ultimately passed from one party to the other in the execution of the contract is not sufficient to make the contracts consist of a sale of goods. The property must pass under the agreement and the agreement must be for the sale of the very articles in which eventually the property passes. Thus, for instance, in a contract for the stitching of a coat the dealer has also to supply the trimmings and the buttons etc. and ultimately when the coat is delivered by the dealer, the buttons and the trimmings also have passed on to the owner of the coat. There is however no sale of goods involved in so far the trimmings and the buttons are concerned. For although the property in the said articles has passed to the owner of the coat, it has not passed in pursuance of an agreement for the supply of the trimmings and the buttons as such. Similarly, in a contract for the construction of a building where the contractor supplies also the material for the construction, although on the execution of the contract property in the material may eventually pass on to the owner of the building, it does not pass as on the sale of the said material as such. It may, however, be that even in contracts of this type, the parties may be able to contract expressly that the contract may consist in part of supply of material and also in part of supply of work and labour, but in the absence of an express contract to that effect, normally there will be no sale of goods involved in such contract. In order, therefore, to find out what is the position with regard to a given contract what has got to be considered is what the contract is and what the parties to the contract have intended.