STATE OF GUJARAT versus M/S. KAILASH ENGINEERING CO.

Citation: [1967] 1 S.C.R. 543 · Decided: 26-09-1966 · Supreme Court of India · Bench: J.C. SHAH · Disposal: Dismissed

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Judgment (excerpt)

B 
D 
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' 
G 
H 
STATE OF GUJARAT 
~. 
M/S. KAILASH ENGINEERING CO. 
September 26, 1966 
[J.C. SHAH, V. RAMASWAMI AND V. BHARGAVA, JJ.] 
Bombay Sales-tax Act, 1953, s. 21--Comract for the construction of 
Railway coach bodies-Provisions in con.tract showing property in cons-
truction material vesting in Railway on arrival at site and in coach bodies 
on completion-Transaction whether sale or works contract. 
The respondent Company, which was an engineering concern with a 
workshop at Morvi,. obtained a contract from the Western Railway Ad-
ministration for construction of third class coaches. 
Under the contract 
the respondent constructed three coaches and submitted a bill which was 
properly certified on October 4, 1958, in accordance with the agreement 
as to the work done by the respondent. , After the bill had been paid, 
the respondent wrote to the Additional Collector of Sales-tax requesting 
him under Section 27 of the Bombay Sales-tax Act, 1953 to hold that 
the transaction was a works contract and not a sale, so that no sales-tax 
was payable under ·the Act. 
The Additional Collector held however that the transaction was a sale 
on which tax was payable. 
Dismissing an appeal from this decision, the 
Sales-tax Tribunal took the view that the general conditions of the con-
tract showed the ownership of the coach bodies only passed to the Rail-
way when they were completed and handed over to the Railway, so that 
the contract was for supply of coach bodies. Sales-tax 
was therefore 
payable on the price of these coach bodies. 
Upon a reference made to 
it, the High Court held however that the contract clearly mentioned that 
the contract was for performance of work of building, 
erecting and . 
furnishing coach bodies on Broad Gauge underframes which already be-
longed to the Railway. The teJms of the contract further showed that 
as soon as the materials were taken by the respondent to the site of the 
construction of coaches, the ownership in those materials vested in 
the 
Railway and all that· the respondent had to do was to carry out the woi:Jc 
of erecting and furnishing the coach 
bodies. 
When the coach bodies 
were ready, the property in them vested in the Railway automatically 
without any further transfer of rights in it to the Railway. The owner-
ship in the ready coach bodies never vested in the respondent company 
at all and although materials for their construction had to be obtained 
by it and brought to the site, in purchasing those materials it was acting 
more or less in the capacity of an agent for the Railway, 
Accordingly 
the High Court came to the finding that the contract between the parties 
was one entire and indivisible contract for carrying out the works specifi-
ed in the agreement and that it did not envisage either the sale of the 
-..aterials by the respondent to the Railway, or of the coach bodies 
as 
&uch; no sales.tax was therefore held leviable on the transaction . . 
On appeal to this Court. 
HELD : The terms of the contract led to the only inference that the 
respondent was not to be the owner of the ready coach bodies and that 
the property in those bodies vested in the Railway even during the pr~ 
·cess of construction. The transaction was therefore clearly a works con-
tract which did not involve a_ny sale. · [547 G] 
· 
· 
544 
SUPllBMB COUllT RBPOR.TS 
(1967] I S.C.R. 
Patnaik cl Company v. State of Ori.ssa, [1965] 2 S.C.R. 782 : distin-
guished. 
C!v1L APPELLATI! JURIS01cnoN: Civil Appeal No. 945 of 1965. 
Appeal by special ieave from the judgment and order dated 
December 14, 1962 of the Gujarat High Court in Sales Tax Re-
ference No. 16 of 1961. 
N. S. Bindra and R. H. Dhebar, for the appellant. 
M. V. Goswami, for the respondent. 
The Judgment of the Court was delivered by 
Bbargava, J. Titls appeal under special leave granted by this 
Court arises out of proceedings for assessment of sales-tax under 
the Bombay Sales Tax Act III of 1953. Messrs. Kailash Engineering 
Co. (hereinafter referred to as "the respondent") was an engineering 
concern having their workshop at Morvi on the meter gauge section 
of the Western Railway. They obtained a contract from the Western 
Railway Administration for construction of III class passenger 
coaches on certain conditions described as the conditions of tender. 
Under that contract which was reduced to writing and was described 
as an agreement, the respondent constructed three coaches and 
submitted a bill which was proper

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