Case: M/s. T.V. Sundram Iyengar &amp; Sons &amp; Another Vs. The State of Madras &amp; Another

ownerships of unfinished bodies in the customers. It may be mentioned that the case of Patnaik and Co., 16 STC 364 = (AIR 1965 SC 1655 ) (Supra) was cited before this Court in the case of Kailash Engineering Co. Shah, J speaking for the Court pointed out the essential differences between the two cases. The case of the assessees in these appeals, as mentioned earlier, falls squarely within the rule laid down in the case of Patnaik and Company. The case of Kailash Engineering Co. cannot, therefore, be of much assistance to the assessees.14. Equally of no assistance to the assessees are the four cases. The State of Madras v. Richardson and Cruddas Ltd., (1968) 21 STC 245 (SC); State of Rajasthan v. Man Industrial Corporation Ltd, 24 STC 349 = (AIR 1969 SC 1245 ); State of Rajasthan v. Nenu ram, (1970) 26 STC 268 (SC) and State of Himachal Pradesh v. Associated Hotels of India Ltd., 29 STC 474 = (AIR 1972 SC 1131 ) to which reference has been made by Mr. Swaminathan on behalf of the assessees. The case of Richardson and Cruddas Ltd. related to a contract for the fabrication, supply and erection of steel structures for a sugar factory. This Court on consideration of the material produced on record held that the contract was for a works contract and not one for sale. The case Man Industrial Corporation Ltd. related to a work for fabrication and fixing certain windows in accordance with specification, designs, drawing and instruction. The windows were to be fixed to the building with rawl plugs in cut stone-works. It was held that the window-leaves did not pass under the terms of the contract as window-leaves and that only on the fixing of the windows as stipulated could the contract be fully executed. The property in the windows, it was observed, passed on the completion of the work and not before, the contract was, therefore, held to be a contract for execution of work and not for sale of goods. Nenu Rams case related to a work of supplying and fixing wooden windows and doors together with frames. The windows had also thereafter to be painted. It was held that under the contract the goods were not sold as movable and that the property therein passed only when the windows and frames were fixed on the site. The liability to pay sales tax was consequently not attracted. The question which arose for determination in the case of Associated Hotels of India Ltd. was whether a hotelier was liable to pay sales tax in respect of meals served to the guest coming there for stay. It was held that the hotelier served meals as part of the amenities incidental to the sevices. The revenue was held not entitled to split up the transaction into two parts one of service and the other of sale of foodstuff. No liability to pay sales tax could consequently be fastened on the hotelier.15. It is plain that there is no parallel between the facts of the present appeals and those of the above mentioned four cases.16. The case of Commissioner of Commercial Taxes, Mysore, Bangalore v. Hindustan Aeronautics Ltd. 29 STC 438 = (AIR 1972 SC 744 ) related to the manufacture and supply of three models of railway coaches to the Railway Board. Advance "on account" payment to the extent of 90 per cent of the material to be use was made to the assessee on production of the inspection certificate. The stores were held as the property of the President and in trust for him on account of the advance. The property in the materials which were used for the construction of the coaches became the property of the President before they were used. The construction was done at a separately located shed and no other construction was undertaken therein. There was no possibility of any material for which advance was not drawn being used for the construction of the coaches. It was held that the transaction for the manufacture and supply of the coaches was a pure works contract. When all the materials used in the construction of a coach belonged to the railway, there could be no sale of the coach itself. The difference between the price of a coach and the cost of material could only be the cost of the services rendered by the assessee. Bare narration of the facts of the above case would show the difference between this case and the cases which are the subject-matter of these appeals.17. Reference has also been made by Mr. Swaminathan to observatiuons on page 167 of Banjamin on Sales (8th Edition) which were based on the case of Anglo-Egyptian Navigation Co. v. Pennie, (1875) 10 CP 271. Those observations were also referred to in the case of Patnaik and Company 16 STC 364 = (AIR 1965 SC 1655 ) (supra) Sikri J. then dealt with the facts of the case of Anglo-Egyptian Navigation Co, and held that case was no authority for the proposition that whenever a contract provides for the fixing of chattel to another chattel, there is no sale of goods. The learned Judge in this connection gave an illustration of a dealer fitting tyres supplied by him to the car of the customer could anyone deny that there had been sale of the tyres by the dealer to the customer, even though the fitting of the tyres was not an easy operation and needed an expert hand?18. It may be mentioned that the Allahabad High Court in the case of Bajoria Halwasiya Service Station v. The State of Uttar Pradesh (1970) 26 STC 108 (All) and Andhra Pradesh High Court in the case of Porthula Subba Rao v. The State of A. P. (1972) 30 STC 69 (Andh Pra) have held that a transaction relating to the construction of the bus bodies by the assessee on chassis supplied by customers constitutes a contract of sale of goods.

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

Explanation:
0[ds]6. The return filed by the assessee-firm for the year 1960-61 showed receipt of Rs. 9,74, 460 on account of the bus bodies constructed under the above agreement. The Commercial Tax Officer held that the said amount represented the prices of the bus bodies received by the assessee and included it in the taxable turnover under the Mysore Sales Tax Act, 1957. On appeal the Deputy Commissioner of Commercial Taxes held that the agreement between the assessee and the Government was in the nature of a works contract and as such there was no sale of the bus bodies. The Commissioner in exercise of his revisional power set aside the order of the Deputy Commissioner and restored that of the Commercial Tax Officer. In the opinion of the Commissioner, there was a sale of bus bodies by the assessee. The matter was then taken up by the assessee in appeal to the Mysore High Court. The High Court set aside the order of the Commissioner and restored that of the Deputy Commissioner. In the opinion of the High Court, the agreement between the assessee and the Government was for works contract. The High Court in this context gave certain reasons to which reference would be made at the appropriate stagedistinction between the two contracts is often a fine one. A contract of sale is a contract whose main object is the transfer of the property in, and the delivery of the possession of a chattel as a chattel to the buyer. Where the main object of work undertaken by the payee of the price is not the transfer of a chattel qua chattel, the contract is one for work and labour. The test is whether or not the work and labour bestowed and in anything that can properly become the subject of sale; neither the ownership of the materials, nor the value of the skill labour as compared with the value of the materials, is conclusive, although such matters may be taken into consideration in determining, in the circumstances of a particular case, whether the contract is in substance one for work and labour or one for the sale of anext point to be noticed is that under the contract the property in the bus body does not pass to the Government till the chassis with the bus body in delivered at te destination or destinations to be named by the Controller except in the case contemplated in clause 6 of the agreement. That clause provides that if some work is not satisfactorily done and the Body Builder on receipt of a written order does not dismantle or replace such defective work or material at his own cost within seven days, the Controller would be entitled to get the balance of the work done by another agency and recover the difference in cost from the Body Builder. The Controller is entitled for this purpose to take delivery of the unfinished body. But even in this case the property in the unfinished body would not pass to the Government till the unfinished body is seized.The sailent features of the dealings between the two assessees with whom we are concerned and their customers as they emerge from the facts given above are that the property in the material used by the assessees in constructing the bus bodies never passed to their customers during the course of construction. It was only when the complete bus with the body fitted to the chasssis was delivered to the customer that the property in the bus body passed to the customer. There was nothing to prevent the assessees from removing a plank, or other material after fixing it to a chassis, and using it for a different purpose or for a different bus body. The present is also not the case wherein the assessee undertakes to construct some building or set up a factory plant wherein the material used can be said to become the property of the other party by invoking the theory of ascretion. It is no doubt true that the bus bodies supplied by the assessees were not readymade and had, if necessary to be constructed bit by bit and plank by plank, according to specifications but that fact would not make any amterial difference.