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H.Y. Jadhav Vs. State of Karnataka - Court Judgment

LegalCrystal Citation
SubjectSales Tax
CourtKarnataka High Court
Decided On
Case NumberSales Tax Revision Petition Nos. 57, 58, 59 and 60 of 1974
Judge
Reported inILR1979KAR1673; [1981]48STC496(Kar)
ActsKarnataka Sales Tax Act, 1957 - Sections 21(2) and 23(1)
AppellantH.Y. Jadhav
RespondentState of Karnataka
Excerpt:
.....was only 'stacking' and not 'training out'.hence the only question that requires consideration in these cases, as specifically stated in the question referred to the full bench, is as to whether the condition that the ballast supplied should be stacked amounts to works contract. 6. (i) the criteria for deciding as to whether a particular transaction amounts to sale or works contract are well-settled by the decisions of the supreme court and have been reiterated in the three decisions, viz......sales turnover by holding that supplying and stacking of ballast did not amount to sale but was a works contract. the cause for making the application was the judgment of this court in state of mysore v. s. r. bhide ([1969] 24 s.t.c. 446; (1968) 2 mys. l.j. 557.), in which it was held that a contract for collection and training out of ballast alongside the rail track amounts to works contract and not sale. the assessee urged that the work of 'collection and stacking' of ballast alongside the railway line at specified points undertaken by him was also similar to 'training out' of ballast and, therefore, the levy of tax under the act was illegal. the commercial tax officer passed four separate rectification orders on 4th january, 1969, allowing the applications of the assessee and.....
Judgment:

Rama Jois, J.

1. In these four connected sales tax revision petitions the following question of law has been referred for the opinion of the Full Bench :

'Where a contract under which an assessee agrees to supply jelly (ballast) to the purchaser with the condition that the jelly (ballast) would be stacked in a particular manner before delivering would amount to a contract for work or a composite contract for sale of goods and for work.'

2. The brief facts of these cases, which have given rise to the above question, are as follows :

(i) The petitioner, who is common in all these petitions, is an assessee under the provisions of the Karnataka Sales Tax Act, 1957 (hereinafter referred to as 'the Act'). Under contracts entered into between him and the railway department, he supplied ballast (which is called 'jelly' in Kannada) which is used by the railway department as bed or substratum for the railway track or, in other words, for the ballasting of the railway track. According to the terms of the contract, the assessee was required to supply and stack specified quantity of ballast at different points, i.e., near each telegraph post alongside of the length of the railway line in Gadag section as specified in the contract. Under the terms of the contract, he was entitled to different rates as specified for the delivery of ballast at different points. His turnover for the supply of ballast under such contract was brought to tax, by separate assessment orders made for the assessment years 1962-63, 1963-64, 1964-65 and 1965-66, by the Commercial Tax Officer, Gadag. Thereafter, the assessee made an application before the assessing officer under rule 38 of the Karnataka Sales Tax Rules, 1957, for rectification of the assessment orders and to exempt the entire amount treated as sales turnover by holding that supplying and stacking of ballast did not amount to sale but was a works contract. The cause for making the application was the judgment of this Court in State of Mysore v. S. R. Bhide ([1969] 24 S.T.C. 446; (1968) 2 Mys. L.J. 557.), in which it was held that a contract for collection and training out of ballast alongside the rail track amounts to works contract and not sale. The assessee urged that the work of 'collection and stacking' of ballast alongside the railway line at specified points undertaken by him was also similar to 'training out' of ballast and, therefore, the levy of tax under the Act was illegal. The Commercial Tax Officer passed four separate rectification orders on 4th January, 1969, allowing the applications of the assessee and exempting the assessee from levy of sales tax for the four assessment years.

(ii) Thereafter the Deputy Commissioner of Commercial Taxes, Dharwar, in exercise of his revisional powers under section 21(2) of the Act, made a common order dated 17th July, 1972, setting aside the four orders dated 4th January, 1969, made by the Commercial Tax Officer. The Deputy Commissioner took the view that the decision of this Court in Bhide's case ([1969] 24 S.T.C. 446; (1968) 2 Mys. L.J. 557) was not applicable to the case of the assessee, as in his case the contract for all the four years was only collection and stacking of ballast and not collection and 'training out' as in Bhide's case ([1969] 24 S.T.C. 446; (1968) 2 Mys. L.J. 557.).

(iii) The assessee preferred appeals against the order of the Deputy Commissioner to the Sales Tax Appellate Tribunal. The Full Bench of the Tribunal by majority dismissed the appeals by a common order. Against the said order the assessee has preferred these revision petitions under section 23(1) of the Act.

(iv) Before the Division Bench, the petitioner relying on the earlier Division Bench decision in Bhide's case ([1969] 24 S.T.C. 446; (1968) 2 Mys. L.J. 557.) contended that in view of that decision, the work undertaken by the petitioner for collecting and stacking of ballast was the same as the work of collecting and training out of ballast, which was held to be works contract in Bhide's case ([1969] 24 S.T.C. 446; (1968) 2 Mys. L.J. 557.) and therefore the orders of the Deputy Commissioner and of the Tribunal were liable to be quashed. The Division Bench consisting of Venkataramiah, J. (as he then was), and Venkatachala, J., considered that Bhide's case ([1969] 24 S.T.C. 446; (1968) 2 Mys. L.J. 557.) was wrongly decided and, therefore, made the reference.

3. Sri K. Srinivasan, the learned counsel for the petitioner, contended that the work of preparing ballast from the quarry together with the requirement of transporting and stacking at specified places constituted works contract and not a mere sale of ballast. He did not dispute that the work of stacking of ballast entrusted to the petitioner only consisted of arranging the heaps of ballast in the required size and shape at each delivery point but, however, contended that such work also amounts to training out operation as explained in Bhide's case ([1969] 24 S.T.C. 446; (1968) 2 Mys. L.J. 557.) and, therefore, the same was works contract not liable to be taxed under the Act. In support of his contention, he relied on the decisions of the Supreme Court in Ram Singh & Sons Engineering Works v. Commissioner of Sales Tax, U.P. : [1979]2SCR621 , Sentinel Rolling Shutters & Engineering Co. (P.) Ltd. v. Commissioner of Sales Tax, Maharashtra : [1979]1SCR644 , and State of Rajasthan v. M.I. Corporation : [1969]3SCR505 .

4. Sri S. G. Doddakalegowda, the learned Government Advocate, appearing for the department, contended that the transaction of the assessee was only sale of ballast to the railway department and the mere requirement of stacking specified quantity of ballast, at the specified points, did not in any way change the transaction into works contract. In support of this submission he relied on the decision of the Supreme Court in Chandra Bhan Gosain v. State of Orissa : [1964]2SCR879 and the decision of the Andhra Pradesh High Court in Anamolu Seshagiri Rao v. State of A.P. ([1973] 32 S.T.C. 51.).

5. In this case the nature of the work carried out by the petitioner is not in dispute. The work undertaken by the petitioner was supply of ballast by way of stacking them at specified points. He was not entrusted with the work of ballasting the railway track. This was the nature of the work executed by the petitioner during the four years, as stated in the order of the Deputy Commissioner, though the word 'training out' was used in the contract for the year 1965-66. The learned counsel for the petitioner did not dispute that the work entrusted during that year was also stacking though he submitted that the work of stacking and training out are identical. It appears to us that the work of 'stacking' and 'training out' are separate and distinct. The relevant meanings of the words 'stack' and 'train' given in Webster's Third New International Dictionary are as follows :

'stack : a large pile, nearly conical but sometimes rectangular - orderly and systematically arranged pile or heap.

train : to draw out : protract; to grow (a plant) in a manner designed to produce a desired form or effect - by bending, tying, and pruning.'

Having regard to the meaning of the word 'stack' stacking of ballast would only mean arranging of the heap of ballast in the required form and nothing more. Training out of ballast, having regard to the meaning of the word 'train' could mean the actual use of ballast in the formation of road or railway track, i.e., metalling the road or ballasting of railway track, by way of spreading the ballast on the road or railway track, as the case may be, according to required specification and consolidating them so as to become part of the road or the railway track. However, in this case, it is unnecessary for us to decide, as to what are the types of uses or work which may be considered as falling within the expression 'train out' or 'training out' as in the present case the petitioner was only entrusted with the work of supplying and stacking ballast, i.e., delivering the ballast after arranging the heap in the specified size and shape, during the years 1962-63, 1963-64 and 1964-65, and although the word 'training out' was used in the work entrusted during the year 1965-66, as held by the Deputy Commissioner, the work was the same as in the previous years. As stated earlier, this position is also not controverted by the learned counsel for the petitioner. As rightly observed by the Appellate Tribunal, stacking was only meant for enabling easy measurement of the quantity of ballast supplied. The petitioner was not entrusted with any other work, such as spreading and consolidating ballast on the railway track, which means 'ballasting'. In Bhide's case ([1969] 24 S.T.C. 446; (1968), 2 Mys. L.J. 557.), it was held that the work entrusted to him was 'training out' of ballast and not mere stacking. Therefore, the said decision must be confined to the facts of that case and cannot be applied to cases like the present, where the nature of work entrusted was only 'stacking' and not 'training out'. Hence the only question that requires consideration in these cases, as specifically stated in the question referred to the Full Bench, is as to whether the condition that the ballast supplied should be stacked amounts to works contract.

6. (i) The criteria for deciding as to whether a particular transaction amounts to sale or works contract are well-settled by the decisions of the Supreme Court and have been reiterated in the three decisions, viz., Ram Singh : [1979]2SCR621 , Sentinel Rolling Shutters : [1979]1SCR644 and M.I. Corporation : [1969]3SCR505 . According to these decisions if the object of the contract is to supply chattel as a chattel to the buyer though some work may be required to be done under the contract as ancillary or incidental to the sale, it amounts to contract of sale. If, on the other hand, the object of the contract is the carrying out of work by bestowal of labour and service and materials are used in the execution of the work, it amounts to contract for work. Applying the above principles to the contract of fabricating, supplying, erecting of a 3-motion electrical overhead travelling cranes, the Supreme Court held in Ram Singh & Sons Engineering Works' case : [1979]2SCR621 that it was a case of works contract. The relevant portion of the judgment reads :

'...... The fabrication and erection is one single indivisible process and a 3-motion electrical overhead travelling crane comes into existence only when the erection is complete. The erection is thus a fundamental and integral part of the contract, because without it the 3-motion electrical overhead travelling crane does not come into being.

* * * * It is essentially a transaction for fabricating component parts and putting them together and erecting them at the site so as to constitute a 3-motion electrical overhead travelling crane.'

The same test was also applied in the earlier case of Sentinel Rolling Shutters : [1979]1SCR644 . In that case, analysing the contract for fabricating, supplying and installing of rolling shutters, the Supreme Court held that it was a works contract and not a case of transfer of chattel as a chattel. The relevant part of the judgment reads :

'It will, thus, be seen that the component parts do not constitute a rolling shutter until they are fixed and erected on the premises. It is only when the component parts are fixed on the premises and fitted into one another that they constitute a rolling shutter as a commercial article and till then they are merely component parts and cannot be said to constitute a rolling shutter. The erection and installation of the rolling shutter cannot, therefore, be said to be incidental to its manufacture and supply. It is a fundamental and integral part of the contract because without it the rolling shutter does not come into being.'

Similarly, in the case of M.I. Corporation : [1969]3SCR505 , it was a contract for the manufacture, supply and fixing of windows in building, and not a contract for mere supply of windows. The Supreme Court held that it was a contract for work. The relevant observations made read thus :

'15. In the present case, the specifications of the windows were set out in the contract. The primary undertaking of the respondent was not merely to supply the windows but to 'fix' the windows. This service is not rendered under a separate contract, nor is the service shown to be rendered customarily or normally as incidental to the sale by the person who supplied the window-leaves. The 'fixing' of windows in the manner stipulated required special technical skill. If the windows were not properly fixed, the contract would not be complete, and the respondent could not claim the amount agreed to be paid to it. We agree with the High Court that it was only upon the 'fixing' of the window-leaves, and when the window-leaves had become a part of the building construction that the property in the goods passed under the terms of the contract.'

(ii) If we apply the tests laid down by the Supreme Court to the facts of these cases, the conclusion that the contract is only for sale and not for work is inevitable. Under the contract entered into by the petitioner, he was required to supply ballast at agreed rates. The supply was required to be made at different points as the ballast were required to be made for ballasting of the railway track. All that was required of him was, instead of unloading the ballast and leaving them in a haphazard heap, he was required to stack them or, in other words, to arrange the ballast in systematically arranged heaps of prescribed measurement, so as to enable the measuring of the quantity of ballast supplied, as the contract was to supply ballast in the units of cubic feet. The terms of the contract were for supply of chattel (ballast) as chattel (ballast) and nothing more. The transaction has no similarity to the supply of cranes as in Ram Singh & Sons Engineering Works case : [1979]2SCR621 , rolling shutters as in Sentinel Rolling Shutters case : [1979]1SCR644 , so also to the case of M.I. Corporations : [1969]3SCR505 which arose out of a contract for manufacturing, supplying and fixing of windows.

(iii) On the other hand, the Supreme Court decision which is apposite to the facts of these cases is that of Chandra Bhan Gosain : [1964]2SCR879 . In the said case, the contract which come up for interpretation was for manufacture and supply of bricks. The Supreme Court held that it was a transaction of sale and not works contract. The relevant observations are :

'The fact that under the contract the bricks had to be manufactured according to certain specifications and, therefore, the appellant had to bestow a certain amount of skill and labour in the manufacture of the bricks did not affect the question. The essence of the contract was the delivery of the bricks and it was a contract for the transfer of chattels qua chattels.'

The above decision applies on all fours to these cases. The essence of the contract in these cases was to supply ballast, instead of bricks as in that case. But by the mere fact that ballast were required to be stacked, the contract does not get converted into a works contract. Though some labour is involved in stacking, it is part of or ancillary to the act of delivery, just as the labour involved in measuring, weighing or continuing, as the case may be, of goods sold before delivery to the buyer. The Andhra Pradesh High Court in the case of Anamolu Seshagiri Rao ([1973] 32 S.T.C. 51.) held that a contract for supplying and stacking of ballast amounts to sale, mainly relying upon the decision of the Supreme Court in Chandra Bhan Gosain's case : [1964]2SCR879 . The facts of that case are exactly similar to the facts of these cases. Their Lordships expressed disagreement with the decision of this Court in Bhide's case ([1969] 24 S.T.C. 446; (1968) 2 Mys. L.J. 557.). As pointed out earlier, Bhide's case ([1969] 24 S.T.C. 446; (1968) 2 Mys. L.J. 557.) turned on the finding that the contract was for training out ballast and not merely for stacking the ballast. Therefore, it is sufficient to state that Bhide's case ([1969] 24 S.T.C. 446; (1968) 2 Mys. L.J. 557.) does not govern cases as the present one, where the contract is only for stacking ballast.

7. In the light of the above discussion our conclusion is that the contract for supply by stacking of ballast at specified points entered into by the petitioner with the railway department was only a contract of sale and not a contract for work.

8. In the result, our answer to the question, referred for our opinion, is as follows :

A contract under which an assessee agrees to supply jelly (ballast) to the purchaser with the condition that the jelly (ballast) would be stacked in a particular manner before delivering, would not amount to a contract for work or a composite contract for sale of goods and for work, but only amounts to a contract of sale.

9. Reference answered accordingly.


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