Case: N.M. Goel &amp; Co Vs. Sales Tax Officer, Rajnandgaon &amp; Anr

incorporated them into the works, there was not even a theoretical possibility of any element of profit being involved in the turnover represented by the cost of such materials. Though, ordinarily, when a works contract was put through or completed by a contractor, profit from the contract was determined on the value of the contract as a whole and not by considering the several items that would go to form such value of the contract, where, as in that case, materials were supplied at fixed rates by the government to the contractor solely for being used, fixed or incorporated in the works on the terms that they would remain the property of the government and any surplus should be returned to the government, and the real total value of the entire contract would be the value minus the cost of such materials so supplied. Since no element of profit was involved in the turnover represented by the cost of the materials supplied by the government to the appellant, the income or profits derived by the appellant from such contracts had to be determined on the basis of the value of the contracts represented by the cash payments received by the appellant from the government exclusive of the cost of the materials received for being used, fixed or incorporated in the works. There the question was whether there was profit taxable to income tax on the sale of the materials. There was none and it was so held. 10. This Court again examined the question in the context of a sale of meals and amenities by a hotelier in the case of State of Himachal Pradesh v. Associated Hotels of India Ltd. ((1972) 1 SCC 472 : 29 STC 474) , where this Court reiterated that mere passing of property in an article or commodity during the course of the performance of a transaction did not render it a transaction of sale. For, even in a contract purely of work or service, it is possible that articles may have to be used by the person executing the work and property in such articles or materials may pass to the other party. That would not necessarily convert the contract into one of sale of those materials. In every case, the court has to find out the primary object of the transaction and the intention of the parties while entering into it. It may, in some cases, be that even while entering into a contract of work or even service, parties might enter into separate agreements, one of work and service and the other of sale and purchase of materials to be used in the course of executing the work of performing the service. In such cases the transaction would not be one and indivisible, but would form two separate agreements - one of work or service and the other of sale. 11. Therefore, from the above decisions it follows that in order to be sale taxable to duty, not only the property in the goods should pass from the contractor to the government, or the appellant in this case but there should be an independent contract - separate and distinct - apart from mere passing of the property where a party purchases or procures goods from the government. Mere passing of property from the contractor to the government would not suffice. There must be sale of goods. The primary object of the bargain judged in its entirety must be viewed. In the instant case, Clause 10 is significant as we have set out hereinbefore. For the purpose of performance, the contractor was bound to procure materials. But in order to ensure that quality materials are procured, the PWD undertook to supply such materials and stores as from time to time required by the contractor to be used for the purpose of performing the contract only. The value of such quantity of materials and stores so supplied was specified at a rate and got set-off or deducted from any sum due or to become due thereafter to the contractor. Mr. Virmani, appearing for the appellant submitted before us that in the instant case, there was no such independent and separate sale. But we are unable to accept. Though, in a transaction of this type there is no inherent sale; a sale inheres from the transaction. Clause 10 read in the proper light indicates that position12. Our attention was drawn to a Bench decision of the Kerala High Court in Construction Company, Changanacherry v. State of Kerala (36 STC 320 (Ker HC)), wherein on a consideration of the contract the court came to the conclusion that the consideration stipulated to be paid to the petitioner in that case for the work which the petitioner had undertaken to perform and not by way of sale price of the poles to be produced and delivered by the petitioner. Therefore, it was held that the petitioner was not liable to sales tax. Mr. Virmani also drew our attention to a Division Bench decision of the Calcutta High Court in Cementation Patel (Durgapur) v. CCT (47 STC 385 (Cal HC)). There, on consideration of the transaction entered into between the parties the court came to the conclusion that the property in the materials all along remained with the Government of India and whatever was the nature of the transaction involved between the assessee on the one hand and the other members of the consortium or the sub-contractors on the other, the same did not and could not amount to sale as the assessee could not in the facts of that case transfer the property therein. In the instant case, by use or consumption of materials in the work of construction, there was passing of the property in the goods to the assessee from the PWD. By appropriation and by the agreement, there was a sale as envisaged in terms of Clause 10 set out hereinbefore. Therefore, in our opinion, there was a sale which was liable to tax.

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

Explanation:
0[ds]11. Therefore, from the above decisions it follows that in order to be sale taxable to duty, not only the property in the goods should pass from the contractor to the government, or the appellant in this case but there should be an independent contractseparate and distinctapart from mere passing of the property where a party purchases or procures goods from the government. Mere passing of property from the contractor to the government would not suffice. There must be sale of goods. The primary object of the bargain judged in its entirety must be viewed. In the instant case, Clause 10 is significant as we have set out hereinbefore. For the purpose of performance, the contractor was bound to procure materials. But in order to ensure that quality materials are procured, the PWD undertook to supply such materials and stores as from time to time required by the contractor to be used for the purpose of performing the contract only. The value of such quantity of materials and stores so supplied was specified at a rate and gotor deducted from any sum due or to become due thereafter to the contractor. Mr. Virmani, appearing for the appellant submitted before us that in the instant case, there was no such independent and separate sale. But we are unable to accept. Though, in a transaction of this type there is no inherent sale; a sale inheres from the transaction. Clause 10 read in the proper light indicates that position12. Our attention was drawn to a Bench decision of the Kerala High Court in Construction Company, Changanacherry v. State of Kerala (36 STC 320 (Ker HC)), wherein on a consideration of the contract the court came to the conclusion that the consideration stipulated to be paid to the petitioner in that case for the work which the petitioner had undertaken to perform and not by way of sale price of the poles to be produced and delivered by the petitioner. Therefore, it was held that the petitioner was not liable to sales tax. Mr. Virmani also drew our attention to a Division Bench decision of the Calcutta High Court in Cementation Patel (Durgapur) v. CCT (47 STC 385 (Cal HC)). There, on consideration of the transaction entered into between the parties the court came to the conclusion that the property in the materials all along remained with the Government of India and whatever was the nature of the transaction involved between the assessee on the one hand and the other members of the consortium or theon the other, the same did not and could not amount to sale as the assessee could not in the facts of that case transfer the property therein. In the instant case, by use or consumption of materials in the work of construction, there was passing of the property in the goods to the assessee from the PWD. By appropriation and by the agreement, there was a sale as envisaged in terms of Clause 10 set out hereinbefore. Therefore, in our opinion, there was a sale which was liable to tax