M?S HINDUSTAN SHIPYARD LTD. versus STATE OF ANDHRA PRADESH

Citation: [2000] SUPP. 1 S.C.R. 592 · Decided: 20-07-2000 · Supreme Court of India · Bench: S. RAJENDRA BABU · Disposal: Dismissed

Judgment (excerpt)

A 
MIS HINDU ST AN SHIPYARD LTD. 
v. 
STATE OF ANDHRA PRADESH 
JULY 20, 2000 
B 
[S.C. RAJENDRA BABU AND R.C. LAHOTI JJ.] 
Sales Tax: 
A.P. General Sales Tax Act, 1957-Sections 2 (n) and (t): Sale or works 
C contract-Distinction of-No straight jacket formula available-Intention of 
parties to be culled out on an overall reading of the terms and conditions 
of a contract-Individual recital or inference flowing from any term or 
condition not to be read in isolation-But an overview of the transaction to 
be determined-Sale of Goods Act, 1930, Sections 20 to 24. 
D 
Appellant manufacturing ships for an ascertained price-Plans and 
specifications for the ships to be provided by the buyer-All materials and 
components used belong to the appellant-Work to progress under supervision 
of the surveyor and representative of the buyer-Payment on percentage 
basis commensurating with the progress of the work-Delivery to be made 
E after successful trial, and on satisfaction of buyer-Appellant to obtain 
insurance cover in joint names-Jn case of any damage to ship before delivery, 
loss to be borne by the appellant-If appellant commits default, buyer is 
entitled to get possession of the vessel in the existing state and get it 
completed elsewhere-Extra cost, if borne, to be paid by the appellant-
F Property in the vessel vesting in the buyer with the payment of first instalment 
and also entitled to mortgage his interest in vessel-But is subject to lien of 
the appellant for the unpaid portion of the price-On the aforesaid terms and 
conditions, held, contract to be of sale and not a works contract-Further, 
transaction exigible to sales tax. 
G 
Appellant was engaged in the activity of building ships for different ship 
owners. Assessing authority held the transactions regarding building of ships 
as transaction of sale liable to payment of sales tax by the appellant under 
section 2(n) of A.P. General Sales Tax Act. Tribunal held such contract as 
works contract as defined under Section 2(t) of the Act. High Court held the 
transaction to be a sale and dismissed the revision. Hence, this appeal. 
H 
592 
> 
HINDUSTAN SHIPYARD LTD. v. STATE 
593 
Dismissing these appeals, the Court 
HELD: 1.1. The distinction between a contract of sale and a works 
contract is very difficult. No straight-jacket formula is available. It is all a 
question of determining the intention of the parties by culling out the same 
A 
on an overall reading of the several terms and conditions of a contract. An 
individual recital or the inference flowing from any term or condition uf the B 
contract is not to be read in isolation but an overview of the contract wherefrom 
the nature of the transaction covered thereby has to be determined. The 
recitals of the contract may also be read in the light of the few provisivns of 
Chapter III of The Sale of Goods Act. [597-G; 613-F, G] 
State of Gujarat v. Variety Body Builder, (1976) 38 STC 176, relied on. c 
2.1. A full reading of the contract shows that the vessel comes into 
existence as a vessel in a deliverable state by investment of components and 
labour by the seller and property in vessel passes to the buyer on delivery of 
vessel being accepted by the buyer. Therefore, the contracts in question D 
involves sale of the vessels within the meaning of clause (n) of the Andhra Pradesn 
General Sales Tax Act, I 957 and are not merely works contract as defined in 
clause (t) and the transactions are exigible to sales tax. [611-B; 614-B] 
Union of India v. The Central India Machinery Manufacturing Co. ltd. 
and Ors. (1977) 40 STC 246 and Patnaik & Company v. The State ofOrissa, E 
( 1965) 16 STC 364, followed. 
The State of Gujarat v. Kai/ash Engineering Co. (Pvt) ltd., (I 967) 19 
STC 13; Sentinel Rolling Shutters & Engineering Company Pvt. ltd. v. The 
Commissioner of Sales Tax. (1978) 42 STC 409 and Hindustan Aeronautics 
limited v. The State of Orissa, (1984) 55 STC 327, relied on. 
F 
Hindustan Shipyard limited, Visakhapatnam v. The Commercial Tax 
Officer, Visakhapatnam, (1970) 1 Andhra Weekly Reporter 197 and P.S. & 
Co. v. State of Andhra Pradesh, (1984) 56 STC 283, referred to. 
Clay v. Yates, (1856) I H&N 73, cited. 
Halsbury's laws of England Fourth Edition, Vol. 41, Para 603; 
Benjamin ·.1· Sales of goods (Fourth Edition) and Pollock & Mulla on Sale of 
Good~ Act 1990, fifth edition, referred to. 
G 
2.2. In the instant case, the contract is for sale of a completely H 
594 
SUPREME COURT REPORTS [

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