Case: M/s. Peare Lal Hari Singh Vs. State of Punjab

3. The petitioners are a firm of building contractors. In December, 1956, they entered into a contract with the Military Engineering Services Department of the Government for the construction of certain buildings known as "Married accommodation" at Ambala Cantonment and received a sum of Rs. 32,000 on 31st January 1957, as advance. On 14th February 1957, the assessing authority, Jullundur District issued a notice intimating the petitioners that as they had failed to apply for registration under S. 7 of the Act assessment would be made under S. 18, sub-s. (2) for the periods commencing from 1st April 1955, onwards, and calling upon them to produce their account books and attend the hearing on 16th February 1957. Thereupon, the petitioners filed the present petition under Art. 32 of the Constitution challenging the legality of the assessment proceedings, the main ground of attack being that the legislature of the Province of Punjab had, under Entry 48 in List II of Sch. VII to the Government of India Act, 1935, no power to impose tax on the supply of materials in construction works as there was no sale in fact on in law of those materials, and that the provisions of the Act which sought to do it wereultra vires.

Reasoning: The evidence placed before us leaves us in no doubt as to the true character of the contract. The tenders which were called for and received were for executing works for a lump sum, and in his acceptance of the tender of the petitioners dated 15th December 1956, the Deputy Chief Engineer stated :"The above tender was accepted by me on behalf of the President of India for a lump sum of Rupees 9,74,961."How this amount is made up is given in Annexure E to the reply statement. It will be seen therefrom that the petitioners were to construct nine blocks, and the amounts are worked out treating each of the blocks as one unit, and the figures are totalled up. It is impossible on this evidence to hold that there was any agreement for sale of the materials as such by the petitioners to theposition is the same in the present case.Rule 33 has not the effect of converting what is a lump sum contract for construction of buildings into a contract for the sale of materials used therein. It must therefore be held following the decision in State of Madras v. Gannon Dunkerley and Co. (A) (supra) that there has been no sale of the materials used by the petitioners in their constructions, and that no tax could be leviedthe charging section is S. 4 (1), which makes it clear that the tax is on the gross turnover in respect of sales effected after the coming into force of the Act, and the obvious intention is to include the supply of materials in works contracts within the category of taxableif the supply of materials in construction works can be regarded as a sale, then clearly building contractors are engaged in the sale of materials, and they would be within the definition of "dealers" under the Act. There is no substance in this contention either.Counsel for the petitioners raised two other contentions, but they are unsubstantial and may be shortly disposed of.In Tripp v. Armitage (1839) 4 M and W 687 : 150 ER 1597 at p. 1603 (B), a builder who had been engaged to construct a hotel became insolvent, and dispute arose between the assignees in bankruptcy and the proprietors of the hotel as to the title to certain wooden sash-frames which had been delivered by the insolvent on the premises of the hotel and had been approved by the clerk and returned to the insolvent for the purpose of being affixed. The contention on behalf of the proprietors was that the goods having been approved by their surveyor, they must be held to have been appropriated to the contract and the property therein passed to them. In negativing this contention, Parke, B. observed :"It is said that the approbation of the surveyor is sufficient to constitute an acceptance by the defendants; but that approbation is not given eo animo at all; it is only to ascertain that they are such materials as are suitable for the purpose; and notwithstanding that approval, it is only when they have been put up, and fixed to the house, in performance of the larger contract, that they are to be paid for."In Reid v. Macbeth and Gray 1904 AC 223 (C) the facts were similar. The dispute related to certain plates which had been prepared by contractors to be fitted in a ship. These plates had been passed by the surveyor and were marked with the number of the vessel and with marks showing the position which each plate was to occupy in the vessel. The ship owners laid claim to these plates on the ground that by reason of the approval by their surveyor and by the markings the property therein must be held to have passed to them, and that accordingly the assignees in bankruptcy of the contractors could not claim them. That contention was negatived by the House of Lords, who held that the facts relied on did not establish a contract of sale of the materials apart from the contract to construct the ship, and that the title to the materials did not as such pass to the ship-owners.