D.V. Vyas, J.
1. These three Special Applications raise a common question and we propose to decide the question by a common judgment. The point which arises in these applications is whether the building materials in a building contract which are purchased by a building contractor from their parties and which are used by him in the construction of a building could be said to be sold by him to the owner of the building within the meaning of clause (g) of Section 2 of the Central Provinces and Berar Sales Tax Act, 1947.
2. The Petitioners entered into a contract for the construction of buildings. They supplied the entire material required for the construction of the buildings. It is contended on their behalf that the supply of the building materials by them, after purchasing the said materials from third parties, was not a sale of goods and, therefore, the State legislature had no jurisdiction to declare such transactions as sale of goods or make them taxable as sale of goods. It is contended for the petitioners that the provisions of the Act -- The Central Provinces and Berar Sales Tax Act, 1947 -- which are sought to be utilised by the State for the purpose of levying a tax upon the building materials, in so far as they are constructed to meant he supply of goods in the execution of a building contract as sale of goods liable to sales tax, are ultra vires and void. It is also the contention of the applicants that Rule 4 of the rules framed under the Act, which has been framed for calculating the price of goods in a contract which includes price of goods as well as work and labour, is arbitrary and that the State legislature has no power to delegate the function of laying down the principles of calculating price of goods in a building contract to the State Government.
3. In the Government of India Act, 1935, 7th Schedule, List 2, there was an item, being Item No. 48, under which the provincial legislature was empowered to legislate in respect of taxes on the sale of goods. In the Constitution of India there is a corresponding provision and that provision is contained in Item No. 54, List II, Schedule VII. Under this item, the State legislature has power to legislate on taxes on sale or purchase of goods other than newspapers. It contended for the petitioners that the words 'Sale of goods' are not defined in the Government of India Act nor in the Constitution, but, at the time when the Government of India Act came into operation or at the time when the Constitution came into force, the words 'sale of goods' had a definitive meaning in law and were governed by the Indian Sale of Goods Act, which was based on the English Sale of Goods Act. In other words, the contention of the petitioners would seem to be that when the Constitution was drafted and came into force, it was clearly understood what in law amounted to sale of goods and it is argued that the intention of the framers of the Constitution in conferring power on the State legislature or the Provincial legislature to legislate on the subject of imposing taxes on the sale of goods did not mean anything more than conferring power to impose taxes on what was then understood in law as sale of goods. Thus the question which arises for our decision in these applications is whether under a contract of building, the supply of building materials by the contractor for the construction of a building could be considered as sale of goods.
4. In our view, the contracts of the nature undertaken by these applicants are not contracts for the sale of goods. This is patently clear on the face of the contracts themselves. That being so, the legislature of a State has no power to levy sales tax by treating these transactions as involving sale of goods so as to bring them within the purview of the Central Provinces and Berar Sales Tax Act, 1947. We must accept the submission of the applicants' learned advocate that the legislature has no power to include within the definition of 'sale' a transaction which is not a 'sale' and so extend its power to tax transactions which are wholly outside their legislative field. In our view, until the building materials are affixed to the building, the property therein would remain with the building contractor, notwithstanding the fact that the materials might have been approved by the employer or his agent. Of course, if there is an agreement to the contrary, viz., an agreement to treat the property in building materials as having been transferred from the contractor to the owner as soon as the contractor purchases those materials from a third party for using them in the construction of a building, the case would assume a different aspect. But, with that aspect of the matter we are not called upon to deal in these applications. It is, therefor,e clear to us that unless there is a contract intending specifically to pass the property in the materials as and when they are brought to the site, the property would pass only when the materials are affixed to the building. As Mr. Justice Sinha observed in the case of Dukhineshwar Sarkar and Bros. Ltd v. Commercial Tax Officer, : AIR1957Cal283 .
'The contract is treated as an entire contract to build and the price is to be paid either on a lump sum basis or the amount ascertained according to the schedule of rate after measuring the quantity'.
5. It may be noted that in deciding the above mentioned Calcutta case, Mr. Justice Sinha followed a decision of the Madras High Court in the case of Gannon Dunkerley and Co. v. State of Madras, AIR 1954 Mad 1130. It was held by the learned Judges of the Madras High Court that in construing the provisions of the Act, the Court should seek to ascertain the meaning and intention of the Parliament from the language of the Statute itself. The learned Judges held that the expression 'sale of goods' signified a contract whereby the property in the goods was actually transferred from the seller to the buyer. With respect, their Lordships put a plain and natural construction upon the words 'sale of goods'. Their Lordships pointed out that the legislative power of a provincial legislature to levy a tax on sale of goods was confined only to the transaction of the sale and they pointed out that building contracts, which expression included contracts for the construction of dams, road work, bridges etc., were always considered in law as entire and indivisible contracts, which expression included contracts for the construction of dams, road work, bridges et., were always considered in law as entire and indivisible contracts int he sense that the complete fulfilment of the promise by one party was a condition precedent to the right of the other party to call for the fulfilment of any part of the promise by the other. In our view,there is no element of sale of the materials in a building contract, and the contract is an indivisible contract. It is impossible to accept the contention that as and when a building contractor goes on purchasing building materials, he goes on selling those materials to the owner of the building even before the building is completed. it is impossible to take the view that after the building materials are purchased by the contractor and sold by him to the owner, they are affixed to the building. It is clear to our mind that unless the work for the competition of which the contactor took the contract was completed, the contractor would not be entitled to the price fixed under the contract. We have looked into the contracts, which are the subject matter of these applications. We are unable to discover anything in the terms of the contracts which would imply a contract for the sale of materials for a stipulated price. There is no doubt that the property in the materials passed to the owner of the land, not by virtue of delivery of the materials as goods under an agreement of sale which stipulated a price for the materials, but because the materials were affixed to the building in pursuance of the contract. When the property in the entire building would pass to the owner, then and then only, and not before then, the property in the materials which are fixed to the building would also pass to the owner. A building comprises several materials, and, that being so, we cannot conceive of two different points of time, one when the property in the materials would pass from the contractor to the owner and the next when the property in the building as distinct from the materials would pass to the owner. We have thought over the question, and have examined the contentions advanced before us by the learned advocates on behalf of both sides,but we find it impossible to accept the contention of the learned Special Government pleader that the property in the building materials went on passing from the contractor to the owner as and when the contractor went on purchasing those materials from third parties. In the view which we are taking we are fortified by the decisions above referred to of the Madras High Court and the Calcutta High Court.
6. On behalf of the State the learned Special Government pleader invited our attention to a decision of the Rajasthan High Court in the case of Bhuramal v. State of Rajasthan, . The leaned Judges in this case pointed out in para. 11 of their judgment.
'Thought, therefore, the contractor is handing over a completed building or dam or bridge according to the terms of the contract what he is really selling is the materials which are included in the building etc. in addition to the labour charges which he has incurred, and charges for his own work and skill.'
7. Upon a careful consideration of the implications of these observations it would appear that even these observations would show that the building materials were not looked upon by the learned Judges as having been sold by the contractor to the owner as and when the contractor went on purchasing them from third parties. The learned Judges took the view that when a building was completed and when the contractor was handing over the completed building to the owner, he was selling the materials, which were used in the construction of the building, to the owner. Now, so far as the view taken by the Rajasthan High Court is concerned, viz., that when the completed building was handed over by the contractor to the owner, he was selling that materials to the owner, we are, with respect, unable to follow that view. As we have stated above, a building contract is one and indivisible contract, in which there is no transfer of goods or selling of materials as and when the materials are purchased by the contractor. In our view, nothing passes from a contractor to the owner until the entire building is completed. We may look at the case from this aspect. If upon the completion of a building, the owner does not approve of the building with the result that the contractor is compelled to pull down the building and build another one to the satisfaction of the owner, what happens? Would the owner be liable to pay the price of the building materials used in the building to the contractor? The answer would be in the negative. This would show, apart from anything else, that the property in the building materials does not pass to the owner from the contractor unless and until the building is completed and approved of by the owner to whom the delivery of the building is handed over. Take another instance. After the owner repudiates the contract, if for some reason the building materials are purchased by the contractor, what is the position? If the property in the goods has already passed from the contractor to the owner, would the contractor be entitled to call upon the owner rescinded the contract? Here again the answer would be in the negative. Thus, it would be clear, upon an examination of the various aspects of the contract, that a building contract, being one and indivisible contract, and the question of handing over of the building materials not arising until the whole building is completed, the property in the building materials would not pass to the owner as and when they are purchased by the contractor.
8. The learned Special Government Pleader has next invited our attention to a decision of the Nagpur High Court in the case of Banarsi Das v. State of Madhya Pradesh reported in The Sales Tax Cases, 1955 6 STC 93. In this case, a Division Bench of the Nagpur High Court observed that if a building contract was not to be split up into its component parts, that is to say, material and labour, in legislative practice relating to the ordinary regulation of sale of goods, there was no warrant for holding that it could not be so split up even for purposes of taxation. The learned Judges said that building materials were goods and there was payment for materials although it was made separately but as part of a larger amount. Again, with respect, we find ourselves compelled to differ from the view taken by the learned Judges of the Nagpur High Court. Upon a plain construction of the expression 'sale of goods' and upon a consideration of the fact that there is nothing constrained in the contracts which are the subject matters of these applications to suggest that the property in the goods was to pass as and when the goods were being purchased by the contractor, we must hold that the contract was one and indivisible and that the property in the building materials was not to pass from the contractor to the owner until the building was completed, and once the building was completed what passed from the contractor to the owner was proprietary right in the immovable property. What passed from the contractor to the owner was not the property in the building materials.
9. The learned Special Government Pleader has then invited our attention to a decision of the Madhya Bharat High Court in the case of F. and C Oslar (India) Ltd. v. State of Madhya Bharat. AIR 1957 Madh. B. 139. In this case, the learned Judges held that even assuming that in some of the contracts where there was affixing of what at one time were chattels the element of sale of chattel might be less predominant than the element of bringing into existence an immoveable property and that for the reason they might not be said to involve a sale. We are unable to see how these observations could help the State. On the contrary they help the Applicants. It would all depend upon what was the predominant element in a contract. If the predominant element was to bring into existence an immovable property, then the transaction would not involve a sale of the building materials. There is no doubt that in these applications what we are concerned with are transactions in which the predominant element was not the sale of the building materials but the bringing into existence of an immoveable property. That being so, even the Madhya Bharat case would not assist the learned Special Government Pleader.
10. Accordingly, for the reasons stated above, we are of the view that the building materials which were purchased by the Applicants-contractors from third parties, and which were used by them in constructing the buildings for which they had taken the contracts, would not fall within the ambit of the expression 'sale of goods' in clause (g) of Section 2 of the Central Provinces and Berar Sales Tax Act, 1947. Therefore they would not be liable to sales tax. In the light of this conclusion there does not survive any necessity to consider whether Rule 4 of the rules framed under the Act is ultra vires or intra vires. The provisions of this rule would not be attracted in view of our finding that the supply of building materials by a contractor to be owner would not amount to a sale within the meaning of clause (g) of Section 2 of the Act. All these applications are accordingly allowed, and it is declared that the building materials supplied by the Applicants to the State in the course of the execution of the building contracts would not amount to a sale of the said materials within the meaning of clause (g) of Section 3 of the Act and, therefore, they would not be liable to any sales tax. The Opponent in all these cases will bear its own costs and pay the costs of the Applicants.
11. Applications allowed.