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

This is an appeal by special leave against the Judgment of the Gujarat High Court dated 8th/9th December,respondent (hereinafter to be described as the assessee) entered into a contract with the Public Works Department of the Government of Gujarat on September 6, 1965 for manufacture and sup ply of kiln-burnt bricks to the said Department for the construction of the Capital Project, Ghandhinagar. Large quantities of bricks were manufactured and supplied under the contract and the applicant received payment for the same in accordance with the agreed rates. The assessee made an application under section 52 of the Bombay Sales lax Act, 1959, on November 19, 1967, to the Deputy Commissioner of Sales Tax, to determine the question whether the said supplies of bricks by the ass essee to the Public Works Department were sales or works contract. The Deputy Commissioner held the supplied of bricks by the assessee as sales. The assessee then appealed to the Tribunal against that order. The Tribunal following the ratio of the decision of this Court in Chandra Bhan Gosain v. The State of Orissa and others (14 S.T.C. 766: 119641 2 S.C.R. 879.) came to the conclusion that the supplies of bricks were sales. At the instance of the assessee, the Tribunal referred the following question of law to t he Highon the facts and in the circumstances of the case the transaction envisaged by the contract entered into by the applicant with the Public Works Department of the Government of Gujarat on 6th September 1965 for the manufacture and supply of kiln-burnt bricks to the said Department and the supply of bricks to the said Department in terms of their running B ill No. XI dated 28th October 1967 is a sale or a works contractHigh Court answered the question in favour of the assessee holding that the transaction was a works contract. In coming to that conclusion the High Court hold asour opinion the decision of the Supreme Court in Chandra Bhan Gosais case (supra) is clearly distinguishable on facts. The contract in that case though prima facie word cd as regards the relevant clauses i n similar fashion as the contract in the instant case is in fact cast in a different mould and it would be difficult to hold in the light of the special features and characteristics of the contract with which we are concerned that the decision of the Supreme Court in that case would completely govern the facts of this case. "

Reasoning: 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.