LexCOMMISSIONER OF COMMERCIAL TAXES, MYSORE BANGALORE versus HINDUSTAN AERONAUTICS LTD.
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COMMISSIONER OF COMMERCIAL TAXES, MYSORE
BANGALORE
v.
HINDUSTAN AERONAUTICS LTD.
December 17, 1971
[S. M. S!KRI, C.J., J. M. SHELAT, I. D. DUA, H. R. KH.\NNA
AND G. K. MITTER, JJ.)
Sales Tax-Contract for manufacture and supply of railway coaches-
If sale or works-contract.
The correspondence between the Railway Board and the respondent
( "'~"ssec regarding the terms and conditions for the manufacture and
supply of railway coaches. and the indemnity bond in respect of the
contract, disclosed that:
(i) The Railway bookod capacity of the assessee for the purpose of
construction of railway coaches;
(ii) an advance, on account, was made to the extent of 90% of the
value of the material on the production of a certificate by the inspecting
autho'rity.
(iii) the material used for the construction of coaches before its use
was the property of the railway;
(iv) there was no possibility of any other material being used for the
cons.truction, 1a.nd
(v) the words used in the contract were. 'manufacture and supply of
the following coaches.'
On the question whether there was a sale @f railway coaches liable
to sales tax. or only a \\'orks·contract,
HELD : The answer to the question whether a contract is a works·
contract or a contract of sale depends upon the construction of the terms
of the contract in the light of surrounding dircumstances. [935 A-Bl
( l) In the present case. when all the material used in the construction
of a coach belonged to ·the Railways there cannot be any sale of the
coach itself. It was a pure works-contract, the difference between the
rrico of a coach and 'the cost of material being only the cost of service
rendered by the ass.ossee. [935 G-Hl
( 2) Whetbor the wheelsets and underframes were supplied free of
cost or not makes no essential difference. [936·· A-Bl
( 3) The material and wage escalator and adjustments regarding final
price mentioned in the contract are neutral factors. [93501
State of Gujamt v. Kai/ash Engineering Co., 19 S.T.C. 13 (S.C.)
followed:
CIVIL APPELLATE JURISDICTION:
Civil Appeal No. 710 of
1968.
Appeal from the .iudgment and order dated March 1, 1967
of the Mysore High Court in Sales Tax Appeal No. 8 of. 1966.
'928
SUPREME COURT REPORTS
[1972] 2 S.C.R.
Somanatha Iyer, R. B. Datar and M. S. Narasimhan, for the
:appellant.
S. T. Desai, Mrs. A. K. Verma, J.B. Dadachanji, 0. C. Mathur
filld Ravinder Narain, for the respondent.
B. Sen, Santosh Chatterjee, G. S. Chatterjee and P. K. Chakra-
.varti, for intervener No. 1.
D. Goburdhun, for intervener No. 2.
The Judgment of 'the Court was delivered by
Sikri, C.J.
In this appeal by certificate granted by the High
Court of.l\1ysore the only question involved is whether the delivery
by the respondent-Hindustaill Aeronautics Ltd.-hereinafter re-
ferred ito as the assessee-to the Railway Board of railway coaches
model 407, 408 -and 411 is liable 10 sales tax under the Central
Sales Tax etc.
The Commercial Tax Officer, by assessment order dated
March 28, 1964, in respect of the assessment year 1958-59, in-
cluded 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 involv-~d in the execution of the works-contract in
view of certain decisions of the High Courts; e.g., McKenzies
Limited v. The State of Bombay(1) and Jiwan Singh v. S1ate of
Punjab(').
In appeal, the Deputy Commissioner of Commercial Taxes
confirmed the order.
In revision the Commissioner of Commer-
cial Taxes also came to the same conclusion.
He observed :
"Th.e 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 'manufac ·
ture 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 1the underframes of the indentor
........ If it was really a works contract the under-
.(J) I J S.T.C. 602.
(2) 14 S.T.C. 957 •
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c.C.T. V, HINDUSTAN AERONAUTICS LTD. (Sikri, C./.)
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