Case: Hindustan Aeronautics Ltd Vs. The State Of Orissa

M/s. Hindustan Aeronautics Limited (hereinafter referred to as "H.A.L.") of which appellant is a division was established on 1st October, 1964. The objective of formation of the H.A.L. was to carry on in India and elsewhere, the business, inter alia, in aeroplanes including manufacture, assembling, buying and selling, etc., of the same. In its division at Sunabeda, manufacture of MIG engines for MIG aircrafts required for defence and overhauling of aero engines of Indian Air Force were undertaken. Some of the MIG engines manufactured by it were sent to Nasik Division of H.A.L. and some to Indian Air Force as per instructions from the Ministry of Defence. The appellant received payments from the Government of India or Indian Air Force for the manufacturing programme. In respect of payments so received, the Sales Tax Officer, Koraput I Circle, levied Central sales tax on the ground that the transactions were inter-State sales. This was disputed by the appellant according to whom the latter was only an agent of the Government of India. In the alternative it was contended that the transactions were nothing but works contract and as such not exigible to Central salesaggrieved by the decision of the tax authorities as mentioned hereinbefore, the appellant had gone up in appeal before the Tribunal. The tax authorities had negatived both the contentions of the appellant. As common question of law on similar facts was raised, the same was disposed of by one order by the Tribunal. Before the Tribunal, only one ground, namely, that the transaction represented works contract was urged.

Court's reasoning:
There cannot be any question, in our opinion, of any sales tax in respect of aero engines transferred to the Nasik Division of H.A.L. for installing the same in aircrafts. It was the transfer of the aircrafts to the Nasik Division for the purpose of completion of the job and the making of the invoices was a matter of accounting and carrying out the job of entrustment. As had been emphasised by this Court, that the primary difference between a contract for work or service and a contract for sale of goods is that in the former there is in the person performing or rendering service no property in the thing produced as a whole notwithstanding that a part or even the whole of materials used by him may have been his property. In the case of a contract for sale, the thing produced as whole has individual existence as the sole property of the party who produced it some time before delivery and the property therein passes only under the contract relating thereto to the other party for price. This cannot be said to be in respect of any of the items involved in these transactions. These transactions were carried out in implementation of the entrustment job for the manufacture by H.A.L. and all payments and actions taken in this behalf were on behalf of the Government ofare therefore of the opinion that the Tribunal was in error in concluding that there was sale involved in these transactions. It is not necessary for us in this connection to refer to the principles in detail which the court should accept in deciding in each particular case the nature of the transactions. These principles have been reiterated in the decision of this Court in the case of Hindustan Aeronautics Limited v. State of Karnataka. [Since reported at page 314 supra]