Case: John Mowlem and Company Limited Vs. Commissioner of Sales Tax, Orissa

1. The appellants, John Mowlem & Company Ltd., who carry on business as contractors and construction engineers, are a company registered in the United Kingdom with a branch office at New Delhi. Under a contract with the Electricity Department of the Government of Madras relating to aProject known as the Machkund Project, the appellants undertook the construct tunnels, surge shafts and pipe tunnels etc. Treating the appellants as "dealer" the Sales Tax Officer, Jeypore, assessed tax under section 12(5) of the Orissa Sales Tax Act on the turnover of the appellants for the quarters ending on June 30, 1950, to December 31, 1951. The High Court of Orissa by order dated September 29, 1958, set aside the order of assessment holding that remuneration received by the appellants under a works contract was not exigible to sales tax under the Orissa Sales Tax Act. But, before the High Court decided the reference the Sales Tax Authorities also brought to tax the remuneration received under the contract for four more quarters. Those assessment proceedings were carried in appeal to the Sales Tax Tribunal of the State of Orissa. The Tribunal set aside the assessment of tax levied on the remuneration received by the appellants under the contract in so far as it related to construction work. But in the view of the Tribunal, the contract was a composite contract relating to construction, and to sale by the appellants to the State of Madras of certain plant, machinery and materials and that eight instalments of price, Rs. 1, 00, 000 received in each of the four quarters ending on June 30, 1950, to March 31, 1951, and Rs. 50, 000 in each of the four quarters ending on June 30, 1951, to March 31, 1952, for the plant, machinery and material supplied by the appellants to the State were taxable under the Orissa Sales Tax Act. At the instance of the appellants the Sales Tax Tribunal referred to the High Court of Orissa under section 24(1) of the Orissa Sales Tax Act, 1947, the following three questionsWhether in view of the decision of the High Court of Orissa in S.J.C. No. 2 of 1965 dated 29th September, 1958, it is open to the Sales Tax Tribunal, Orissa, to hold that any part of the contract forby Messrs John Mowlem & Co. Ltd., with the Government of Madras (now Andhra Pradesh) is liable for sales tax ?2. Whether the contract entered into with Messrs John Mowlem & Co. Ltd., by the Government of Madras (now Andhra Pradesh) foris in the nature of a contract of agency where the goods are Government property from the inception, and there is no passing of title in them, at any time, from the company to the Government?3. Whether the contract forbetween Messrs John Mowlem & Co., Ltd. and the Government of Madras (now Andhra Pradesh) is not composite and indivisible, but contains a separate and distinct contract for the supply of material, viz., plant as such, and the value of the plant being liable for the sales taxHigh Court recorded affirmative answers on the first and the third questions and an answer in the negative on the second question. With special leave, the appellants have preferred these eight appeals.

Court's reasoning:
The first question referred to the High Court was answered in the affirmative and no serious argument has been raised by counsel for the appellants challenging the correctness of the answer.The third question is easy of solution. Under the terms of the contract, the appellants were not only to carry out the works contract, but also to procure certain plant, machinery and equipment for use in the execution of the works contract. The agreement, it is true, relates to a "target estimate" of Rs. 80, 40, 543 "which is calculated to cover the work in the specifications", and represents an estimate based on the appellants "knowledge and experience of the reasonable and probable cost under efficient management", and is "adjustable in accordance with the alterations to the specification or to the quantities, and with variations in labour rates and cost of materials." But the contract also contains an arrangement under which the appellants were to procure certain plant, machinery, equipment and small tools, details whereof are to be found in Appendix B, Part II, under the heading "to be supplied by the contractor".We are unable to agree with the learned Judges of the High Court. A covenant in the contract whereby the appellants undertook to deliver goods purchased by them on behalf of the State at the site where they were required by the latter is not inconsistent with the relation between them being of agent and principal, and a stipulation that the appellants "will remain responsible for transportation and insurance as far as the site" also does not detract from the overwhelming indications furnished by the other terms of the contract. The stipulation that goods purchased will be insured in the joint names of the Government of the State of Madras and the appellants is susceptible of no positive inference in favour of either case, and the learned Chief Justice was right in observing that the term about the contractors liability to pay customs duty, if any, was inconclusive. It is not possible to raise an inference from the clause, "the final accounting for the plant, and its passing into the hands of the purchaser will take place" in paragraph 8 of the contract, that till it was delivered at the site of the Machkund Dam, the appellants were the owners of the plant. The clause deals merely with the obligations undertaken by the appellants for "transportation and insurance" of the plant, and not with the passing of property in the plant from the appellants to the State of Madras.