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

This judgment will govern both the appeals. These two appeals by special leave are directed against the common judgment of the Gujarat High Court ill Sales Tax Reference No. 5 of 3969 relating to two periods, namely, (1) from 24th October 1955 to 31st March, 1956 and (2) from 1st April, 1956 to 31st March, 1 1957The Tribunal had earlier delivered a common judgment in two revision applications No. 121 and to 12 of 1961 and made a composite reference to the High Court under the Bombay Sales Tax Act stating the following question for answerWhether on the facts and in the circumstances of the case the three contracts for construction of coaches on the under-frames supplied by the Railway Administration, the contracts containing similar terms were contracts for sale of goods and not works contracts?The facts appearing from the statement of case are as follows:-The respondent, M/s. Variety Body Builders, Baroda, entered into three contracts with the Western Railway Administration for construction of railway coaches on the under-frames supplied by the said railway Administration. The three contract were reduced into writing and contain ed the terms and conditions under which the con tracts were to be performed. The first agreement dated September 17, 1954 was for construction of 25 N.G. coaches. The second agreement dated July 11, 1955, was in respect of construct ion of 6 T.L.R. coaches. The third agreement dated January 14, 1956, was for construction of 25 N.G. coaches. The Sales Tax officer held that the transactions relating to the construction o. the said coaches were transactions of sales of these coach es by the respondent. On that basis the respondent was assessed at Rs. 2, 72, 803/8/- for the first period and at Rs. 3, 82, 820/- for the second period. The respondents appeals to the Assistant Commissioner of Sales Tax were unsuccessful. The revision applications of the respondent before the Deputy Commissioner of Sales Tax and later before the Tribunal met with the same fate. The Tribunal, however, referred the question of law. as set out earlier to the High Court and the High Court answered the same in favour of the respondent and hence these appeals by special leave.The only question with which we are concerned in these appeals is whether the contracts entered into by the respondent with the Railway Administration for construction of railway coaches are contracts for sale of goods or works contractsSince the three contracts are substantially similar the High Court and the authorities below took note of the recitals of the third contract dated January 14, 1965, and we will also take the same into consideration.

Court's reasoning:
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.