HINDUSTAN AERONAUTICS LIMITED versus STATE OF KARNATAKA

Citation: [1984] 2 S.C.R. 248 · Decided: 16-12-1983 · Supreme Court of India · Bench: V.D. TULZAPURKAR · Disposal: Appeal(s) allowed

Cited by 3 judgment(s) · see the full citation network in Lexace

Judgment (excerpt)

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HINDUSTAN AERONAUTICS LIMITED 
v. 
STATE OF KARNATAKA 
December 16, 1983 
[V,O. TUtZAPURKAR, ~· S. PATHAK AND SABYASACHI MUKHARJI, JJ.] 
Sales Tax Law-Karnataka Sales Tax Act-Exfgibility to tax-Contracts for 
servicing reassembling l.A,F Planes which includes supply of materials by the "con-
tractor" if the ·~owner" did not supply them, and only if the owners Dy. Financial 
Advisor authorises them-Whether the contracts in question were sales contract or 
were part of one contract of executing the works contracts no! attracting Sales Tax. 
The appellant is a manufacturer of spare parts and accessories of various 
aircrafts ·and has also established facilities for assembling, servicing, repairing. 
• overhauling of aircrafts, their instruments and accessories. The job done by the 
appellants were servicing, assembling, repairing and overhauling "Airforce planes'; 
entrusted to them. These work·s were done on the basis of contracts or job orders 
issued from time to time. While on ·contract directly concerning the repairing 
servicing and overhauling of a specified aircraft, instrument or accessory in which 
the spare parts had been used In the execution of service contracts was on record, 
there was an agreement dated 23rd June 1951 described as "contract for the flight 
servicing and maintenance of the H.Q. Training Command I.A.F Communication 
Flight, "wherein the President of India has been described as the "Gwner" and the 
appellant as the contractor. The agreement provided that the works would be 
carried out by the contractor and payment made by the owrier "at cost plus 10% 
profit basis or at the contractor's standard fixed rates, where applicable. Under 
clause 3, the owner will provide the contractor with all the nece5sary spares and 
m1terials (other than expendable materials such as paints; dopes, cleaning rages 
etc.) and where however there was delay in the supply of the essential items. the 
contractor will provide those whenever possible by purchase or manufacture within 
expenditure authorised by the owner's Deputy Financial Adviser. at the contractor's 
request from· time to time. 
The Sales Tax authorities sought to tax that portion of the total turnover 
of the appellant for the relevant years in question which was equivalent to 
the 
money value of the spare parts of th~ air-crafts which it had supplied to the Indian 
Air Force as a result of their use in the process of repairing, servicing and over-
hauling of the aircrafts, their instrum~nts and accessories which were sent to the 
appellant for the said purpose. The App::llate Tribunal and the High Court held 
these to ba composite contracts. The High Court was of the view that sale of 
spa.re p:uts was clearly in contemplation of the parties and the documents in question 
constituted composite contracts, one relating to the remuneration for the services 
·rendered and the other for the sale of goods. Hence the appeals by speeialleave. 
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Allowing the appeal, the Court 
~ HELD : 
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It is well settled that · the difference between contract of 
fiJNDUSTAN AERONAUTICS l', KARNATAKA 
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ntract for sale of goods, is, that in the former, there is in the 'person . 
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work or rcndcrmg scrvtce no proper y m 
e tmng.s produced as a 
pcrformJOS 'th'itanding that a part or even the whole of materials used by bim 
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his property. In the case o a contract or sa e, the thtng produced as 
luld ~~~ individual exic;tence as the sole property of the party who produced it 
a who.e a~fore delivery and the property therein passed only under the contnct 
som~ ttmtoh reto to the other party for price. {257 D-E] 
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1 .2 It is necessary, therefore, i,.n every case for the courts to find out whether 
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· ce there was any agreement to work for a stipulated consideration. If 
1~ ~~ so it would not be a sale because ·even if some sale may be extractc:d 
\'\ would 'not affect the true po!iition 
Merely showing in the bills or invoices, 
~\a \'aluc of materials used in the job would not render the contract as one of sales. 
r 'r: natur" nmJ type of the transaction~ are important and ueterminaiivc facror. 
\V:at is ncet.-ssary to find out, is the dominant oltject • [257 F-OJ 
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t :J A contract of sale of goods must be distinguished from a contract for 
~ 1votk Rnd labour. The distinction is oft~n a fine on.:. A contract of s.1le i

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