Case: Commissioner of Sales Tax, Gujarat State, Ahmedabad Vs. Sabarmati Reti Udyog Sahkari Mandali Ltd

equipment water, coal, labour etc. required for supply and manufacture of bricks shall have to be made by the contractor at his own cost. The Government shall give only land for excavating soil for manufacture of bricks to the contractors free of rent from the land reserved by the. Government for this purpose. The land shall have to be handed over back to the Government after the manufacturing of the brick work is completed.* * * *Clause 10:The contractor shall have no right to sell these bricks, brick bats, chharas or any other materials manufactured on this site to any other private parties. If, however, it is found that the materials have been sold by him to private parties or other bodies, he shall have to pay to Department at the rate of 10% of the value of materials at the tender rates."While giving the specifications Item No. l herein refers to "manufacturing and supplying of 1 Class kiln- burnt bricks of standard size including stacking in regular consignments etc. camp. as directed".7. Mr. V. S. Desai brings to our notice the common as well as the distinguishing features of this case and of Chandra Bhan Gosains case (supra). According to him the common features are the following:-The land was given free for manufacture of bricks in both the cases. The materials shall remain at the contractor`s risk till the date of final delivery. in Chandra Bhan Gosain`s case (supra) the contractor could not sell the bricks to third parties without previous permission of the company . Here also the contractor has no right to sell the bricks etc. but if he does sell he will have. to pay 10 percent of the value of the materials at the tender rates. Both the Clauses are, therefore, permissive Clauses and a re substantially the same. In both the contracts the contracting parties have used the words such as sell, purchase, deliver or rate of supply etc. in the contract.8. In Chandra Bhan Gosain`s case (supra) dealing;, with those very common features this Court observed as follows:-"It may be presumed that it was understood that in quoting his rate for the bricks, the appellant would take into account the free supply of earth for making the bricks. A gain what was supplied to the company by the appellant was not the earth which he got from it but bricks, which, we think, are something entirely different. It could not have been in intended that the property in the earth would continue in The company in spite of its conversion into such a different thing as bricks. Further we find that the contract provided that the bricks would remain at the appellants risk till delivery to the comp any. Now, obviously bricks could not remain at the appellants risk unless they were his property. Another Clause provided that the appellant would not be able to sell the bricks to other parties without the permission of the company. Apparently, it was contemplated that without such a provision the appellant could have sold the bricks to others. Now - he could not sell the bricks at all unless they belonged to him. Then we find that in the tender which the appellant submitted and the acceptance of which made the contract, he stated, "I/we hereby tender for the supply to the Hindus than Steel Private Ltd. Of the materials described in the undermentioned memorandum. The memorandum described the materials as bricks, and also stated the quantities to be delivered and the rate at which materials are to be supplied. All these provisions plainly show that the contract was for sale of bricks. If it were so, the property in the bricks must have been in the appellant and passed from him to the subject-matter.From the above extract, it is clear. that the decision in Chandra Bhan Gosains case (supra) will govern the p resent case where terms and conditions are almost identical so far as relating to the relevant subject-matter."9. Mr. Desai, however, took pains to point out certain distinguishing features of the present case such as maintenance of qualified Executive Engineer for supervision of work subject to removal at the instance of the Government; restriction on employment of children under 12 years; labour welfare provisions regarding wages; workmens compensation, etc.; provisions in relation to prevention of cruelty to animals; non-payment of royalty for excavating earth; use of tube-wells standing on the Government site manner of execution of the work regarding moulding and drying and provision against subletting which shall constitute a breach of the contract resulting in forfeiture of security deposit.10. All the above terms relate to a stage in the process of proper and efficient manufacturing of bricks and are not inconsistent in a contract of sale. These terms do not appear to impinge on the character of the contract as one for sale of the bricks manufactured. The Government in its overall interest and anxiety for general welfare could insist on compliance with certain beneficial legal measures. It could also insist on certain terms which will ensure efficient production of the material. Provision against subletting when the land was given free by Government is also understandable. All the above features do not negate the concept of a contract of sale of the bricks that are ultimately manufactured. The true test in this case is whether in making the contract to brick produced was transferred as a chattel for consideration and we are clearly of opinion that this has taken place in this case. The property in the bricks was entirely of the assessee. He had not only to manufacture that but also to stack them for facilitating delivery. The essence of the contract was, therefore. the delivery of the bricks after manufacture. The present case cannot be distinguished from the decision of the Chandra Bhan Gosains case (supra). We are, therefore, clearly of opinion that the contract in this case is a contract of sale and not a works contract. The assesse

Decision (1 = appeal accepted, 0 = rejected): 1

Explanation:
1[ds]Mr. Desai, however, took pains to point out certain distinguishing features of the present case such as maintenance of qualified Executive Engineer for supervision of work subject to removal at the instance of the Government; restriction on employment of children under 12 years; labour welfare provisions regarding wages; workmens compensation, etc.; provisions in relation to prevention of cruelty to animals; non-payment of royalty for excavating earth; use of tube-wells standing on the Government site manner of execution of the work regarding moulding and drying and provision against subletting which shall constitute a breach of the contract resulting in forfeiture of securitythe above terms relate to a stage in the process of proper and efficient manufacturing of bricks and are not inconsistent in a contract of sale. These terms do not appear to impinge on the character of the contract as one for sale of the bricks manufactured. The Government in its overall interest and anxiety for general welfare could insist on compliance with certain beneficial legal measures. It could also insist on certain terms which will ensure efficient production of the material. Provision against subletting when the land was given free by Government is also understandable. All the above features do not negate the concept of a contract of sale of the bricks that are ultimately manufactured. The true test in this case is whether in making the contract to brick produced was transferred as a chattel for consideration and we are clearly of opinion that this has taken place in this case. The property in the bricks was entirely of the assessee. He had not only to manufacture that but also to stack them for facilitating delivery. The essence of the contract was, therefore. the delivery of the bricks after manufacture. The present case cannot be distinguished from the decision of the Chandra Bhan Gosains case (supra). We are, therefore, clearly of opinion that the contract in this case is a contract of sale and not a worksassessee is, therefore liable to sales tax. The question is answered accordingly. The High Court was not right in answering the question in favour of the assessee.