LexSTATE OF GUJARAT (COMMISSIONER OF SALES TAX, AHMEDABAD) versus M/S. VARIETY BODY BUILDERS
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I >' - - I ; STATE OF GUJARAT (COMMISSIONER OF SALES TAX, AHMEDABAD) v. M/S. VARIETY BODY BUILDERS April 26, 1976 (H. R. KHANNA AND P. K. GOSWAMI, JJ.] Bon1bay Sales Tax Act-Contracts for sale of goods and works conrracts- J'ests for decidin!l works contracts. The respondents entered into three written contracts with the Raihvays for the construction of railway coaches according to the design provided by them, A B ·On the under-frames supplied by the Railways. The contractor was required C to make security deposit for the due fulfilment and completion of the contract which, in the event of breach, was liable to be forfeited and confiscated. Supply including n1anufacture, assembly, fitting, fixing and· finishing of all constructional n1aterials and fittings including timber was by the contractor. The Railways were required to supply electric fitting~ Railway staff would work in association with the contractor's staff for installation of electrical equipment; Railway site was provided for the work and for no other purpose. The_ Railways had the right of inspection at all times and of maintenance of control over standard D of workmanship requiring rectification of '\Vork and replacement of materials when ordered. The Sales Tax Officer, holding that the transactions were salCs, charged the1n to tax. The respondents' appeal to the Assistant Commi3sioncr of Sales ·Tax. as also a revision application before the Deputy Cornmi~sioner of Sales Tax :-ind the Tribunal were unsuccessful. On reference, the High Court held that the contracts were works contracts. , Dismissing the appeals, JJELD : (1) From the totality of the material terms and conditions in the agreement it is not possible to hold that the parties intended that the -contractor transferred the property in the railway coaches to the Railways after its coinpletion. The essence of the contract or the reality of the transaction as a whole indicates that the contract was a contract for work and labour. [139FJ (2) The predominant element in the contract was the work and labour aspect and supply of materials was only accessory although the lnaterials \Vere definitely necessary for the· execution of the work. The term that if the con- ·tractor died, his legal representatives would have no interest whatsoever in the agreement save in respect of a claim for the money due nnd for the r return of the security deposit, clearly showed that the contract was n works contract. The unfinished work became the property of the Raih~'ays and the legal representatives were entitled only to claim for the value of the \''Ork ·done. Jn the event of the death of the contractor, there was no provision for the handing over of the unfinished coaches by the legal representatives to the Railways. In such an event the Railways automatically becaine the ov.·ner ,of the unfinished property. (140 E-G) T. Y. Sundaram Iyengar & Sons v. The State of Madras (1975) 35 STC 24 nd Patnoik and Company v. The State, of Orissa, (1965) 16 STC 364, di•ti1>. :uished. Conimissioner of Con1mercial Taxes, Mysore v. Hindustan Aeronautics Ltd., (1972) 29 STC 438; State of Gujarat v. Kaila1h Engineerin~ Co, (1967) 1'. STC 13; State of Madra,~ v.r Richardson & Cruddas Ltd., (1968) 21 STC 245: Go.emment of Andhra Pradesh v. Guntur Tobaccos Ltd., (1965) 16 240 and 131 E F H A B 132 SUPREME COURT REPORTS [1976] SUPPLEMENTARY Commissioner of &les Tax, M.P. v. Purshottani Premji, ( 1970) 16 STC 38, followed. CIVIL APPELLATE JURISDICTION : Civil Appeal Nos. 1492 and 1493 of 1971. Appeals by Special Leave from the Judgment and Order dated the 7th and 9th November, 1970 of the Gujarat High Court at Ahrnedabad in Sales Tax Reference No. 5 of 1969. S. T. Desai and M. N. Shroff; for the Appellants. V. S. Desai!, Vimal Dave, Ram Phal, Ganpat Rai, (Mrs.) S/uif Sethi and (Miss) Kai/ash Mehta; for Respondent. C The Judgment of the Court· was delivered by D E F G H GOSWAMI, J.-This judgment will govern both the appeals. These two apeals by special leave ar·~ directed &gainst the common judgment of the Gujarat High Court in Sales Tax Reference No. 5 of J 969 relating to two periods, namely, (l) from 24th October, 1955 to 31st March, 1956 and (2) from 1st April, 1956 to 31st March, 1957. The Tribunal had earlier delivered a common judgment in two revision applications No. 121 and No. 122 of 1961 and made a com- posite reference to the High Cou
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