HINDUSTAN AERONAUTICS LTD. versus THE STATE OF ORISSA

Citation: [1984] 2 S.C.R. 267 · Decided: 16-12-1983 · Supreme Court of India · Bench: V.D. TULZAPURKAR, R.S. PATHAK, SABYASACHI MUKHERJI · Disposal: Appeal(s) allowed
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Judgment (excerpt)

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267 
A 
HINDUSTAN AERONAUTICS LTD .. 
v. 
' 
THE STATE OF ORISSA· 
December 16, 1983 
(V.I). TULZAPURKAR; R.S. 
0
)'ATHAK. AND SABYASACHI MUKHARJI, JJ.] 
·Central S11les Tax ACt, 1956 rebd with the Central Sales .Tax· (O~isSo) Rules, 
-1957-Sales tax levfab/e on transactiOii of sale .and not of works contraci-;Whether 
· a transaction is contract for sale or Contract for works deflends_ upon main object of 
·the partieS in the circrtmstancCs of (he transactiOn and. 110 fixed .rule is.OP_Plic'ale. 
After.the Government of.u.S.S.R .. under an agteenient, granti4 a licence 
to the Government'bf India -for manufaCturing and esserilbling of aircrafts, both· 
· the Governments signed a proto001 in the mii.tter of mii'nufacturing of MIG aircrafts· . 
in_ India. The Government, of India in their tum entrusted. the m~nufacture of 
ihci said aircrafts to the appellant, M/s Hindi.istan Aeroriautics Ltd., (H.A.L. for 
short) .. The GoVernmeilt of India 
1infonned H.A.L. that· the niaterialS imported 
by H.A.L. for 'this purpose arid other f:quipri1e:i1t etc .. w.ere the property of Govern-
ment of India: .. Fof· the imPlemen41t.on of. the entnlstment H.~.L .. had. _three 
diViSions namely, Koraput .(in the State ~of Otissa), Nasik (in the State of Mahar~sh
tra) and Hyderabad (in the State of Andhra Prad.csh). ·,;The H.A.L. manufactured 
MIG aircraft engi!tes at Koraput.(Orissa) and se"nt-SOme· of th~m to its Nasik Division 
for being. fitted· to the MIG aircrafts to be supplied Jo the Govcmnl.ent of India 
and some to the Indian·Ai~ For~ direGtly as pf:r instructions from·,tht Ministry 
of Defence. The H.A.L. :ceceived payments from Governmeilt .of India or Indian 
Air Force for the manufacturing programme:. Jn respect" of payments so received, 
-th6 Sales Tax Officer, Kora put I Circle- of the State of OriSsa levied. ccfitral .sales 
tax on the ground that the lransactions were inter-State sales. The Assistant Com-
missioner of Sales. Tax while confirming the order of the Sales Tax Officer obserVed. 
that"H.A.L. J:i3d charged some ·p~rceniageof profit in the invoices sent ·to. the. 
Governmeiit of India for the MtG engines as in a· commercial transactio.n ill tase of 
sale which gave a clear indication tha"t .this was ·a c8.se _of transaCtio~ of sale and 
not ~f agellcy. Ih ~ppeal the Sales T3x Tribunal negativecf the contention. ofH.A.L. 
that the .. transaction was a works contract and nof. a sa'l.e·. 
Herice' this appeal. 
Allo~ing' the appeal, 
\ ... 
.. 
HELD : ·· The transaction. is not"a Con'tract for sale but a contract for· work 
and Jabour. (275 DI 
· 
There is no rigid or inflexible rule applicable aHke to all tra·~aCtioD.s which · 
can indicate distiriction ·between a contract for sale and contr3ct for.work' and.-
labour-. - Whether a particular. contract was on'e of sale or for Work ·and labour 
depended upon the main object of the parties in the ~ii"cumStance&- of the. trS:ns- · 
actioRs. I11 a contract.for Sale, the main obj~t _of the parties is,to transfter proPerty. 
'in and deliVery of possession of a chattel as a cha-ttel, tO the buYe·r ... Th~.primary 
•· 
B 
c 
D 
E 
.F 
G 
H 
A 
B 
D 
E 
F 
G 
H. 
268 
SUPREME COURT REPORTS 
[1984] 2 S.C.R. 
difference between a contract for work or service and a contract for sale of goods 
is that :n the form~r there is in. the person performing or rend~ring s~rvice no pro-
A 
perty in. the ·1hir~g produced as a whole notwithstanding that a part or even· the 
whole material used by him may have been Qis property. In the case of a cOntract 
for ~le·, the thing p~oduced as a whole" haS individu~l existence as the sole property 
· of the part'y who prod.uced it some time before delivery and the· prop"ity 'therein 
passes only under the contract· relating .thcrerto to the other party for pricC. · 
[275 E-F: 276 F-0] 
Mis Hindustan Aeronautic~· Ltd v State of Karuatakti, [1984] 2 .S.C.R. -248. 
referred to. 
In the instant case, taking into consideratiop the correspondence and· circun1s-
ta11ccs under which this cntfustment had to be understood, there was no transfer 
of property in the MIG Aero Engines by H.A.L. to the Government of India. 
The 
n1aterials and equipments sCnt by the GOven1mcnt of u.S.s.R. and the· MIG Aero 
Engines asseinbled by H.A.L. fron1 such materials belonged to the Government 
of India 'at all material ti1nes. 
The Appellant had no ownership in the materials 
whkh were all supulied by the Gcivern1nent-0f USSR. norAi.n the finish
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