COMMISSIONER OF SALES TAX, GUJARAT versus M/S. SABARMATI RETI UDYOG SAHAKARI MANDALI LTD.

Citation: [1976] SUPP. 1 S.C.R. 158 · Decided: 26-04-1976 · Supreme Court of India · Bench: HANS RAJ KHANNA · Disposal: Appeal(s) allowed

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Judgment (excerpt)

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158 
COMMISSIONER OF SALES TAX, GUJARAT 
v. 
M/S. SABARMATI RETI UDYOG SAHAKARI MANDALI LTD. 
April 26, 1976 
[H, R KHANNA AND P. K. GOSWAMI, JJ.J 
Sales Tax-Works contract for manufacture and supply .of kiln burnt bricks 
-Bricks .tnanufactured and supplied according to 
contract and payment 
received-Contract whereby land is given free and the right to sell to third 
parties is subject to restrictions-Whether there is a transfer of chattel for 
co11sideration-Co11tract whether liable to sales tax on bricks supplied-Bombay 
Sales Tax A.ct. 1959. 
Contract of sale and contract for ·work and labour-Distinction--Beneficial 
~..,·elf are features in a contract do not negate the concept of a contract of sale. 
The respondent manufactured and supplied kiln burnt bricks to the appellant 
as per the works contract dated 8/9th December, 1970, which provided (i) 
that land would be given free; (ii) that the material shall remain at the 
contractor's risk till the date of final delivery; and (iii) that the. contractor 
had a right to sell to the third parties bricks subject to payn1ent of 10% 
of the value of materials at the tender rates of the appellant. ·The respondent 
\Vas assessed to sales tax under the Bombay Sales Tax Act, 1959, on the 
basis that'" these supplies were sales. The Deputy Commissioner of Sales Tax 
on an application under s. 52 of the Bombay Sales Tax Act held the supplies 
as sales. On appeal the Sales Tax Appellate Tribunal confirmed it, following 
the ratio of the decision in 1964 (2) OCR p. 879 (C. B. Go,ain v. 
State of 
Orissa and Ors.) But, the High Oourt, on a reference ans\vered it in favour 
of the assessee and against tb~ revenue. 
Allo\ving the Revenue's appeal by 
special leave the· Court, 
l:lELD : (I) .It is well settled '..ha• whether a partiiculal' transaction is a 
contract of sale or a works contract depends upon the tn1e construction of the 
terms and conditions of the document, when there is one. The question will 
depend upon the intention _of the parties executing the contract. There is no 
standard fonnula by whichi one con di!>tinguish a contract of ::sale from 
the 
contract for vvork or labour. The question is not always easy and has always 
vexed jurists all over. The distinction, between contract of sale: of goods and a 
contract for work and Jabour is often a fine one. 
A contract of sale is a 
contract whose main obiect is the transfer of property in and the delivery of 
the possession of, a chattel as a chattel to the buyer. 
[160 E-G] 
State of Guiarat v. Variety Body Builders, 
[1976] 
(3) SCR 131 applied. 
Halsbury's Laws of England, referred to. 
(2) As per terms and conditions of contract, the land was given free lor 
n1anufacture of bricks: the materials remained at the risk of the contractor 
till the date of :final delivery; the respondent could not sell the brir;ks to third 
parties but could do so under certain restrictions; the contracting parties have 
used the words as sale, purchase, delivery or rates of supply etc., in the 
contract. All these terms and conditions are almost identical to the conditions 
in Chandra Bhan Gosain's case and hence the decision in that case will govern 
the present case ns well. The various other terms in the contract, nnmely, 
1naintenunce o[ a qualified executive engineer for supervision of work, restric-
tion on e1nploy1nent of children ~lnder 12 ye~rs of age, la~o.ur \\relfar~ provi-
sions regnr<liing wages, workmen s con1pensat1on etc., _provLS1on 
relatlng 
to 
cruelty to t1nimals, non-payment of royaliy for excavating earth etc. releate to 
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c.s.T. v. SABARMATI MANDALI (Goswami, J.) 
159 
a process of proper and efficient manufacturing of bricks and are not incon-
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sistent in a contract of sale. These terms do not appear to impinJe on the 
character of the contract as one for sale of bricks manufactured. The Govern-
ment in its overall interest and anxiety could insist on compliance of certain 
beneficial legal measures. 
Provision against sub-letting v.:hen the land was 
gi..-en free by the Government was also understandable. All these features 
do not negate the concept of a contract of sale of bricks that are ultimately 
manufactured. The true test in this case is whether in ~aking the contract. 
brick. produced was transferred as a chattel for consideration and this has 
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taken place in this case. The essence of the contract was, therefore. the 
delivery of the br

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