Case: State of Gujarat (Commissioner of Sales Tax, Ahmedabad) Vs.  Variety Body Builders

S. T. C. 13). Indeed Kailash Engineerings case (supra) was relied upon by the respondent before u s. It was held in that case that as the terms of the contract indicate that the respondent was not to he the owner of the ready railway coaches and that the property in those bodies vested in the Railway even during the process of construction, the transaction was clearly a works contract and did not involve any sale.Mr. Desai strenuously contends that clause (29) of the contract in Kailash Engineerings case (supra) distinguishes that case from the case at hand Clause 29 w as a specific provision for certain contingencies in case of loss theft or destruction of the materials or plant. This special provision was to the effect that the liability of the contractor was not to be diminished in any way notwithstanding the fact that the materials and plant became the property of the Railway as soon as they were brought to the Railway premises. We however do not see much point in this submission In that case since the plant and materials were brought on the site when the contract were to be constructed the ownership is said to have vested in the Railway. In the present case also substantially the same result follows. The agreement here shows that when the contractor dies his legal representatives or assignees have no interest in the contract which terminates and they will be only paid for the value of the work done. This would mean the property constructed upto that point was impliedly agreed upon to be vested in t he Railway as and when materials were worked into the chassis. This is the implication of the agreement and not merely on the theory of accretion. At any rate the passing of property in this case is ancillary to the primary contract for execution of the work. 17. In the Slate of Madras v. Richardson &Cruddas Ltd ((1968) 21 S. T. C. 215.) this Court was dealing with a contract for fabrication and installation of steel structure for sugar factory in the State of Mysore. In the course of the judgment this Court observed as follows:- It had therefore to be established that the consideration was received under a contract to sell specific goods for a price and property in the goods contracted to be sold passed to the society when the goods were delivered in a pursuance of the contract. If the contract was for completing the stipulated work and for that purpose to use materials belonging to the respondents in the performance or execution of the contract as accessory to `work and labour the contract must be regarded as a works contract and not a contract for sale even in the property in the goods ultimately passes as a result of the contract .The Court further observed at page 252 as follows . The contract being one for supplying for an inclusive price a specially designed fabricated unit to be assembled and installed by specially trained technicians ill the premises of the customer it was not a contract for sale of a unit or different parts of the unit is specials good but a works contract . 18. In the Government of Andhra Pradesh. v. Guntur Tabaccos Ltd.((1965) 16 S. T. C. 240.) this Court dealing with an identical issue observed as follows at page 255: The fact that in the execution of a contract for work some materials are used and property in the goods so used passes to the other party the contractor undertaking to do the work will not necessarily be deemed on that account to sell the materials . Again at page 258: Whether a contract for service or for execution of work invokes a taxable sale of goods must be decided on the facts and circumstances of the case. The burden in such a case lies upon the taxing authorities to show that there was a taxable sale and that burden is not discharged by merely showing that property in goods which belonged to the party per forming service or executing the contract stands transferred to the other party. This Court in Commissioner of Sales Tax, M.P. v. Purshottam Premji((1970) 26 S. T. C. 38.) dealt with the difference between a contract of work or service and a contract for sale of goods in the following passage: 19. The primary difference between a contract for work or service and a contract for sale of goods in that in the former there is in the person performing work or rendering service no property in the thing produced as a whole notwithstanding that a part or even the whole of ` the material used by him may have been his property. In the case of a contract for sale the thing produced as a whole has individuals existence as the sole property of the party who produced it at some time before delivery and the property therein passes only under the contract relating there to the other party for price. Mere transfer of property in goods used in, the performance of a contract is not sufficient; to constitute a sale there must b e an agreement express or implied relating to the sale of goods and completion of the agreement by passing of title in the very goods contract the to be sold. Ultimately the true effect of an accertion made pursuance to a contract has to be judged not by an artificial rule that the accretion may he presumed to have become by virtue of affixing to a chattel part of that chattel but from the intention of the parties to the contract. We are fortified by all the above decisions of this Court in our conclusion in favour of the assessee. 20. We are therefore clearly of opinion that the contract in the present case is one of works contract and the High Court is not in answering the question in favour of the assessee.

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

Explanation:
0[ds]It is well-settled that when there is a written contract it will be necessary for the Court to find out therefrom the intention of the parties executing the particular contract. That intention has to be primarily gathered from the terms and conditions which are agreed Upon by the parties. We will, therefore, immediately turn our attention to the agreement in questionIt had therefore to be established that the consideration was received under a contract to sell specific goods for a price and property in the goods contracted to be sold passed to the society when the goods were delivered in a pursuance of the contract. If the contract was for completing the stipulated work and for that purpose to use materials belonging to the respondents in the performance or execution of the contract as accessory to `work and labour the contract must be regarded as a works contract and not a contract for sale even in the property in the goods ultimately passes as a result of the contract .The Court further observed at page 252 as followsThe contract being one for supplying for an inclusive price a specially designed fabricated unit to be assembled and installed by specially trained technicians ill the premises of the customer it was not a contract for sale of a unit or different parts of the unit is specials good but a works contractThe primary difference between a contract for work or service and a contract for sale of goods in that in the former there is in the person performing work or rendering service no property in the thing produced as a whole notwithstanding that a part or even the whole of ` the material used by him may have been his property. In the case of a contract for sale the thing produced as a whole has individuals existence as the sole property of the party who produced it at some time before delivery and the property therein passes only under the contract relating there to the other party for price. Mere transfer of property in goods used in, the performance of a contract is not sufficient; to constitute a sale there must b e an agreement express or implied relating to the sale of goods and completion of the agreement by passing of title in the very goods contract the to be sold. Ultimately the true effect of an accertion made pursuance to a contract has to be judged not by an artificial rule that the accretion may he presumed to have become by virtue of affixing to a chattel part of that chattel but from the intention of the parties to the contract. We are fortified by all the above decisions of this Court in our conclusion in favour of the assesseeWe are therefore clearly of opinion that the contract in the present case is one of works contract and the High Court is not in answering the question in favour of the assessee.