Narayana Pai, J.
1. In this sales tax revision petition the only point for consideration is, whether the petitioner assesses has been rightly made liable for sales tax in respect of two sums of money, viz., Rs. 24,713.90 and Rs. 2,408.43. The former is a figure culled out from a total of Rs. 3,77,149.64 representing the total of the bills for repairs of motor vehicles. The other amount, viz., the sum of Rs. 2,408.43, is the cost, according to the books of the assessee, of nuts and bolts purchased by him and utilised for the exclusive purpose of carrying out certain items of repairs.
2. The assessee carries on more than one department of business. One of them is for the sale of motor spares and the other is repairing and servicing of motor vehicles. When for the purpose of carrying out any repair job it becomes necessary to replace any spare part which could be supplied from out of the stock held by the assessee in his spare parts department, the said supply of the spare part is treated as a separate sale made by him to the customer and actually submitted for assessment to sales tax. But the position in regard to items covered by the aforesaid sum of Rs. 24,713.90 is different. In cases where the defect in the motor vehicle under repair cannot be rectified by the substitution of the defective part by a part available in the spare parts department, the assessee himself manufactures or fabricates the parts necessary, expending the raw material purchased by him for the purpose and investing labour for the purpose of fabrication. The total cost to him of the raw material as well as the labour is generally found set out as one of the debits in the bill for repairs he prepares in respect of the particular job. It is because the bill is so itemised and the items representing parts actually fabricated by the assessee for the purpose of the job are separately stated with necessary particulars, the assessing authority was able to pick out these items and proceeded on the footing that they should be regarded as separate transactions of sales attracting liability to sales tax. The position in regard to the sum of Rs. 2,408.43 is slightly different. Nuts and bolts covered by the said sum are manufactured items purchased by the assessee himself as manufactured items and stored. Whenever it becomes necessary for him for the purpose of repair work to use the nuts and bolts, he takes them out of his stock and uses them for the said purpose. The sum of Rs. 2,408.43 represents the value of nuts and bolts taken by him from out of his stock and utilised for various repairs carried out by him during the period of accounting relevant to this assessment. In this case also the fundamental assumption on the basis of which the authority has treated this amount as part of the turnover assessable to sales tax is that utilisation of the nuts and bolts for the purpose of repairs must be regarded as a separate sale by the assessee of the said nuts and bolts. The question of law is whether the said basis on which the assessing authority has proceeded is sustainable in law.
3. So far as the assessing authority himself is concerned he appeared to have had no doubt whatever in his mind. He disposed of the matter as follows :
'(3) Labour charges : Rs. 3,77,149.64.
The concern undertakes repairs of vehicles in its workshop and claims exemption on the above sum on the ground that the same represents pure labour charges recovered. On scrutiny of the bills issued, it is seen that the concern has fabricated certain parts in its workshop and fixed the same to the vehicles. The amount so received comes to Rs. 24,713.90. This is nothing but the sale of spare parts which are to be taxed. Hence the exemption claimed under labour charges has to be reduced by the sum.'
4. The appellate authority, however, considered and discussed in its order several rulings of the High Court and the Supreme Court cited before him and expressed the view that the said rulings are distinguishable in their application to the facts of this case.
5. The Sales Tax Appellate Tribunal, upon second appeal, has completely accepted as correct the discussion of the rulings by the first appellate authority. Indeed, the major portion of the Tribunal's judgment consists of extensive extracts from the judgment of the first appellate authority.
6. The legal position in regard to cases of this nature is now beyond the pale of controversy. The matter has been considered not only by the several High Courts, but also by the Supreme Court in its several aspects.
7. The earliest attempt made by State legislation to tax works contracts was the subject of consideration from the point of view of its constitutionality by the High Court of Madras in the case of Gannon Dunkerley & Co. Ltd., ( 5 S.T.C. 216). The opinion of the High Court was accepted by the Supreme Court upon appeal, in the judgment of the Supreme Court reported in The State of Madras v. Gannon Dunkerley & Co. (Madras) Ltd. : 1SCR379 . The general pattern of legislation was to treat works contract as involving a sale of material plus supply of labour for a remuneration and the statutes made a theoretical calculation and directed that a certain percentage shall be treated as sale consideration and subject to sales tax. The attack against the constitutionality in such a provision was that the legislative competence of the State Legislature under Entry 54 of the Second List of the Seventh Schedule of the Constitution was limited to imposing taxes upon actual transactions of sale and that the said competence could not extend to taxing a notional sale, i.e., a transaction treated as a sale for the purpose of tax although actually and in the contemplation of the parties, there had never been in fact a sale. It is necessary to bear this fundamental principle in mind before proceeding to discuss the other cases cited in the orders of the lower authorities.
8. The present petitioner had been taxed in the same manner he has been in this proceedings, by the Sales Tax Authorities of Madras in respect of transactions of identical nature. The matter was ultimately taken up to the Madras High Court and disposed of by it by judgment in Sundaram Motors (Private) Ltd. v. The State of Madras ( 9 S.T.C. 687). The High Court of Madras, after pointing out that the effect of the judgment in Gannon Dunkerley's case ([1954-1958] 5 S.T.C. 216; 9 S.T.C. 353) was to point out that the purported tax on works contracts on the basis of a notional sale is ultra vires of the legislative competence of the State Legislature, analysed the position under bills of the same type as the ones with which we are now concerned, and came to the conclusion that the essence of the contract was that the motor vehicles belonging to the customers of the petitioner should be repaired and that the fabrication of parts by the petitioner whenever necessary was an ad hoc fabrication, i.e., a fabrication for the specific and exclusive purpose of completing repair work. In that view the High Court of Madras pointed out that although as a matter of law the property in the spare parts so fabricated and put into the vehicle would pass to the owner of the vehicle at the end of the repairs, it was impossible either in the eye of law or as a matter of inference in regard to the intentions of the parties to hold that there had been, either in contemplation or in actual event, a sale of the fabricated parts independent of the word of effecting repairs.
9. The Advocate-General of Madras addressed an argument before the High Court to the effect that it was possible to split a contract into different parts and treat one part as a contract of work and labour and another part as a contract for sale of particular items of material. That argument was rejected by the High Court on the ground that if regard be had to the particular intention of the parties such distinction or splitting up of the contract was impossible.
10. We have discussed this case at some length because it completely covers the argument addressed before us and answers the points raised by the learned Government Pleader on behalf of the department.
11. The case decided by this Court in Shankar Vittal Motor Co. Ltd. v. State of Mysore has discussed the position on much the same lines as the Madras High Court had done in the case already referred to. After referring to the leading cases decided by the Courts in England and in India, this Court also pointed out that the essence of the matter is that if a contract can be identified as a contract of work, the incidental passing of any items of material from the worker to the promises under the contract cannot be regarded as a separate contract of sale.
12. In the case of Patnaik ( 16 S.T.C. 364) strongly replied upon for the respondent, their Lordships of the Supreme Court did not depart from the principles already stated above, but have actually affirmed the same. On an examination of all the terms of the agreement there concerned, their Lordships found that the inference was inevitable that the bodies of carriages built on the chassis were at all times intended to be sold by one party and purchased by the other as a composite unit and that therefore the clear inference of an actual sale could not be got rid of by reason only of the fact that the chattel intended to be sold and purchased was not immediately available for sale but had to be manufactured by expending time and labour.
13. The principle of that case is wholly inapplicable and unavailable to a case of this type. The contract was admittedly a contract for effecting repairs in respect of a vehicle already belonging to the customer. The completion of the contact does not result in the manufacture of any chattel which is at that point of time to be sold to the customer. The work is done by the repairer on or in respect of the vehicle and for the purpose of carrying out the repairs the vehicle is left in his possession and he holds possession as bailee under the contract. The bailment comes to an end as soon as the repair work is completed and at the end of it the vehicle comes back to the owner who at all times had been its owner. The ownership in the vehicle was never in the repairer and the repairer was incapable of conveying any title to or in respect of the vehicle. The fabricated parts as well as nuts and bolts used in connection with the repairs were never in the contemplation of the parties as the subject-matter of any sale at all. So far as the parts fabricated by the repairer himself are concerned, there can be no doubt that the fabrication being for the exclusive purpose of the repair, they could not have been contemplated as the subject of any independent sale. Similar argument or similar suggestion on these lines is perhaps possible in the case of nuts and bolts because they cannot be said to be available for the exclusive use of the repair alone but may be utilised for other purposes also. The possibility of their use for other purposes however becomes completely immaterial as soon as it is remembered that the repairer uses nuts and bolts for the purpose of repair and the owner of the vehicle gets them as a result of the completion of the repair work expected by him. Although the manufacture was not ad hoc, the use thereof for repair was undoubtedly ad hoc and that is the distinguishing feature and not the possibility of selling those nuts and bolts independently in the open market.
14. Such being the clear legal position, we have found it a little difficult to see how the first appellate authority and the Sales Tax Appellate Tribunal could have distinguished those cases and proceeded on the footing that they were inapplicable to the facts of this case. A close scrutiny of the judgment shows that the true reasons which influenced their decision were the following :-
At one stage it is stated,
'In the instant case, there is an implied contract between the appellant and its customers for the fabrication of spare parts for sale and it is used in the repair of motor vehicles.' In another place it is stated.
'In these circumstances, there has certainly been a contract of sale, impliedly though it might be, for specific goods like spare parts for the price amounts noted against them in the bills issued ................. Even the fabricated parts so fabricated for the particular requirements of the job on hand should be treated as an item of sale effected to the party just as any other readily available spare part used up in the process of the repair work has been treated in the circumstances.' In another place it is stated, 'From the facts before us which are already discussed above, the repair work undertaken is, as found earlier, combination of contracts as seen from the bills issued, one for supply of work and labour and one for supply of materials and in this view the repair job undertaken cannot be construed as works contract as defined in the Sales Tax law.'
15. We have little doubt in our mind that the use of such words as 'implied contract' should be treated as an inaccurate description of what in fact is a notional sale. A contract could be implied when it is possible on the circumstances to infer that the parties did have an intention to enter into a separate contract although that intention is not expressed either in writing or orally. There must, therefore, be a possibility of finding as a fact that there was an unexpressed intention on the part of the contracting parties to enter into two different contract. If such an inference is not possible, to treat different parts of what the parties considered to be a single contact as in themselves amounting to separate contracts is not an implication but a statement of a fictitious notion. So what the Tribunal and the appellate authority in this case call an implied contract of sale is, in our opinion, no other than a notional sale which the State Legislature is incompetent to tax. Similar reasoning also answers the other postulate that the works contract must be treated as a combination of two contracts one for sale and the other for repair. It is unnecessary for us to say anything more than what the Madras High Court has already stated in dealing with a similar argument addressed to it in the case already cited.
16. Having regard to the circumstances of the case, and in view of the clear principles of law well established by a series of decisions, we have no hesitation in holding that the other including within the assessable turnover of the petitioner the above sums of Rs. 24,713.90 and Rs. 2,408.43 is illegal and should be set aside. We order accordingly. The excess tax, if any, collected in that regard will be refunded to the assessee. The assesses petitioner will have the costs of this petition. Advocate's fee Rs. 100.
17. Petition allowed.