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Anamolu Seshagiri Rao and Co. Vs. the State of Andhra Pradesh and anr. - Court Judgment

LegalCrystal Citation
SubjectSales Tax
CourtAndhra Pradesh High Court
Decided On
Case NumberWrit Petition Nos. 3645 and 3680 of 1971 and 829 and 847 of 1972
Judge
Reported in[1980]45STC388(AP)
AppellantAnamolu Seshagiri Rao and Co.
RespondentThe State of Andhra Pradesh and anr.
Appellant AdvocateA.V. Koteswara Rao, Adv.
Respondent AdvocateThe Government Pleader for Commercial Taxes
DispositionPetition dismissed
Excerpt:
- all india services act, 1951.sections 8 & 11 & a.p. buildings (lease, rent and eviction) control rules, 1961, rule 5: [v.v.s. rao, g. yethirajulu & g. bhavani prasad, jj] refusal by landlord to receive rent - deposit of rent in court - held, a tenant has the option to take recourse to section 8 in case of refusal or evasion by landlord to receive rent and if landlord were to not name a bank or refuse even the money order of rent, the tenant can deposit the rent in accordance with sub-rules (1) to (3) of rule 5. the notice to person entitled to rent and proper maintenance of accounts of such deposits under sub-rules (4) and (5) of rule 5 are solely dependent on compliance with sub-rule (3) by the tenant. the payment or deposit of rent under section 11 read with sub-rule (6) of rule 5.....jayachandra reddy, j.1. the common question which arises for decision in these writ petitions is whether the contracts entered into by the petitioners with the southern and south central railways were contracts for sale of ballast or for work and labour.2. the petitioners voluntarily submitted their returns for the years 1963-64 to 1969-70 without claiming any exemption, and assessments were made and the tax was paid. later they claimed exemption for the year 1970-71 and somehow it was granted. on that basis they claimed refund of the sales tax already paid for the years 1963-64 to 1969-70 and their request was turned down by the sales tax authorities. the petitioners filed these writ petitions seeking a declaration that the collection of the tax is illegal and a direction for refund of.....
Judgment:

Jayachandra Reddy, J.

1. The common question which arises for decision in these writ petitions is whether the contracts entered into by the petitioners with the Southern and South Central Railways were contracts for sale of ballast or for work and labour.

2. The petitioners voluntarily submitted their returns for the years 1963-64 to 1969-70 without claiming any exemption, and assessments were made and the tax was paid. Later they claimed exemption for the year 1970-71 and somehow it was granted. On that basis they claimed refund of the sales tax already paid for the years 1963-64 to 1969-70 and their request was turned down by the sales tax authorities. The petitioners filed these writ petitions seeking a declaration that the collection of the tax is illegal and a direction for refund of the tax already paid. Since a common question arose in all the writ petitions, they were heard together by a Division Bench, which negatived the plea of the petitioners that the contracts in question amount to contracts for work and labour: vide A. Seshagiri Rao and Co. v. State of A.P. (1973) 1 An. W.R. 111. The petitioners preferred appeals before the Supreme Court (Civil Appeals Nos. 1784 to 1787 of 1972). The Supreme Court by its judgment dated 18th August, 1978, set aside the order of the High Court and remanded the cases to the High Court for fresh disposal. The Supreme Court, while remanding the cases, felt that the material placed before the High Court was not adequate to come to a decision as to the true nature of the contracts, and directed the High Court to dispose of the writ petitions in accordance with law after giving an opportunity to the parties to produce such further material as they think fit, including the contracts in their entirety. Their Lordships, however, did not express any opinion on the correctness or otherwise of the order of the High Court, but were pleased to set aside the same on the only ground that the material produced by the parties is not adequate for enabling the court to come to a correct decision. Their Lordships observed that it would be for the High Court to decide oh the entire material placed before it, whether the contracts were contracts for sale of ballast or for work and labour. Accordingly, these writ petitions have come up before us for a fresh determination of the point involved. The additional material placed by the petitioners consists of the certificate issued by the Additional Chief Engineer (Construction), South Central Railway, a printed book containing the Regulations for Tenders and Contracts, Condition of Tender, Tender Agreement Form and General Conditions of Contract. The respondents in their turn have filed an additional counter-affidavit, a letter of the Commercial Tax Officer, Krishna West-II, Vijayawada, dated 4th August, 1978, addressed to the Senior Divisional Engineer, South Central Railway, Vijayawada, seeking clarification on certain points, and the reply to the same by the Divisional Engineer, South Central Railway, Vijayawada. We shall refer to this additional material at the appropriate time while considering the nature of the contracts. Before doing so, it is necessary to refer to the definition of 'works contract', and to some of the decided cases of the Supreme Court on this point, which lay down certain guidelines.

3. Clause (t) of Section 2(1) of the Andhra Pradesh General Sales Tax Act reads as follows:

'Works contract' means any agreement for carrying out for cash, or for deferred payment, or for other valuable consideration, the construction, fitting out, improvement or repair of any building, road, bridge or other immovable property or the fitting out, improvement or repair of any movable property.

4. From this definition, it can be seen that to bring a particular contract under the definition of 'works contract', it must be shown that the agreement is for carrying out the construction, fitting out, improvement or repair of any building, road, bridge or other immovable property.

5. In State of Gujarat v. Variety Body Builders [1976] 38 S.T.C. 176 (S.C.), their Lordships of the Supreme Court observed thus:

It can be treated as well-settled that there is no standard formula by which one can distinguish a contract of sale from a contract for work and labour. There may be many common features in both the contracts, some neutral in particular context, and yet certain clinching terms in a given case may fortify a conclusion one way or the other. It will depend upon the facts and circumstances of each case. The question is not always easy and has for all time vexed jurists all over.

6. In Government of Andhra Pradesh v. Guntur Tobaccos Ltd. [1965] 16 S.T.C. 240 (S.C.), the majority consisting of J.C. Shah and S.M. Sikri, JJ., as they then were, held thus:

The question in each case is one about the true agreement between the parties and the terms of the agreement must be deduced from a review of all the attendant circumstances. But from the mere passing of title to goods either as integral part of or independent of goods it cannot be inferred that the goods were agreed to be sold, and the price is liable to sales tax.

7. Their Lordships further observed as follows:

In order that there should be a sale of goods which is liable to sales tax as part of a contract for work under a statute enacted by the Provincial or State Legislature, there must be a contract in which there is not merely transfer of title to goods as an incident of the contract, but there must be a contract, express or implied, for sale of the very goods which the parties intended should be sold for a money consideration, i.e., there must be in the contract for work an independent term for sale of goods by one party to the other for a money consideration.

No useful purpose will be served by entering upon a detailed analysis of the large number of cases cited at the Bar. The cases relied upon lay down no general principle and the ultimate decision in all the cases turned upon what the courts found were the true agreements between the parties.

8. Their Lordships further added that whether a contract for service or for execution of work, involves a taxable sale of goods must be decided on the facts and circumstances of the case. In Halsbury's Laws of England, Third Edition, Volume 34, at page 6, a passage reads thus:

A contract of sale of goods must be distinguished from a contract for work and labour. The distinction is often a fine one. A contract of sale is a contract whose main object is the transfer of the property in, and the delivery of the possession of, a chattel as a chattel to the buyer. Where the main object of work undertaken by the payee of the price is not the transfer of a chattel qua chattel, the contract is one for work and labour. The test is whether or not the work and labour bestowed end in anything that can properly become the subject of sale; neither the ownership of the materials, nor the value of the skill and labour as compared with the value of the materials, is conclusive, although such matters may be taken into consideration in determining, in the circumstances of a particular case, whether the contract is in substance one for work and labour or one for the sale of a chattel.

9. From the above extracts, it is clear that in deciding the question involved, it becomes necessary at the threshold to determine the nature of the contract with reference to the material placed by both sides.

10. The petitioner in Writ Petition No. 3645 of 1971 is a firm registered as a dealer under the Andhra Pradesh General Sales Tax Act, carrying on business in supply and stacking of stone ballast to the Southern and South Central Railways. It was assessed for the years 1963-64 to 1969-70 with respect to the various contracts executed by it under the agreements entered by it with the railways. Similarly, the petitioners in Writ Petitions Nos. 3680 of 1971, 829 of 1972 and 847 of 1972 are all dealers carrying on business for supply and stacking of stone ballast. It is not in dispute that all the contracts executed by these petitioners are of identical nature and the terms of the agreement also are of the same nature. Therefore, it will be sufficient if we refer to the facts in Writ Petition No. 3645 of 1971, the terms of the agreement in that writ petition and the general conditions of contract which are identical and applicable to the contracts in all the cases. The petitioner obtained a leasehold right from the Government of Andhra Pradesh under the Andhra Pradesh Minor Mineral Concession Rules for quarrying out the stone by paying a fixed annual rent. It entered into agreements with the railway department during the years 1964 to 1969 for supply and stacking of stone ballast required by the railways for the repairs and improvement of the railway track. Under the agreement, the contractor agreed for supply and stacking of stone ballast. Clause II of the agreement, which is relevant, reads thus:

WHEREAS the contractor has agreed with the railway for the performance of the works 'supply and stacking 50 mm. and 25 mm. size hard stone ballast alongside the fast line and slow line from km. 305/11 to km. 312/5 for making up ballast deficiency between stations Ammanabrolu and Uppugundur in Madras-BzA Section, Vijayawada Division'....

11. In all the contracts entered by him, the nature of the work is the same as mentioned in Clause II. Clause IV of the agreement reads thus:

Now THIS INDENTURE WITNESSETH that in consideration of the payments to be made by the railway the contractor will duly perform the said works in the said schedules set forth and shall execute the same with great promptness, care and accuracy in a workmanlike manner to the satisfaction of the railway and will complete the same in accordance with the said specifications and said drawings and said conditions of contract on or before....

12 In the schedule to this agreement, the relevant entries show 'supply and stacking 50 mm. and 25 mm. sized hard stone ballast alongside the fast line and slow line from...for making up ballast deficiency between stations...' In the same schedule against S. No. 1 under the heading 'Description of work' it is mentioned: 'Supply and stacking 50 mm. size hard stone ballast alongside the fast line and slow line tracks and as directed by the Engineer-in-charge in the following kms....' The relevant terms in all the agreements entered into by the petitioner in W.P. No. 3645 of 1971 are more or less the same, except in one or two agreements wherein Clause II of the agreement reads thus:

WHEREAS the contraptor has agreed with the railway for the performance of the works 'supply and stacking 50 mm. granite stone ballast at Nidamanuru yard and training out the same on Gudivada-Bhimavaram Section'....

13. It is only in Clause II with reference to the nature of the works this minor difference is noticed. The other conditions are the same. Therefore, it can be seen that in a few cases the nature of the works was to supply and stack the stone ballast and training out the same. In all the others, the nature of the works is 'supply and stacking of the stone ballast alongside the railway tracks'. In the schedules to each of the agreements, the consolidated rate of payment per unit is mentioned. In the note to these agreements, it is specifically mentioned that the contractor shall make his own arrangements to obtain ballast from quarries and the rates quoted by him should be inclusive of all incidental charges such as paying royalties and making paths where necessary to lead the ballast. The nature of the works executed by the other petitioners is also of the same type. Under the terms of the contract, the contractors have to make their own arrangements to obtain ballast from the quarries and the quarries do not belong to the railway department. The contractors have to supply the ballast of particular size agreed upon and stack the same either along the railway line or train out the same alongside the lines. The payment will be made after taking measurements of the ballast stacked. The agreements, no doubt, do not contemplate dissecting the value of the ballast supplied and the value of work and labour bestowed in stacking or training the same after stacking.

14. The learned counsel for the petitioners laid great emphasis on the words 'works', 'workmanlike manner' and 'perform the said works' in support of his contention that the contracts are for work and labour. We have seen the agreements which are in printed form. Only in Clause II the description of the works is entered in the blanks. Therefore, the mere use of the word 'works' here and there in these agreements, which are meant for all the types of works including the construction works, cannot by itself be decisive as to the nature of the works. This is all the material originally placed before this Court. It is well-settled that when there is a written contract it will be necessary for the court to find out from the contents therein the intention of the parties in executing the contracts. A careful perusal of the above material shows that the dominant idea underlying all the agreements was the supply of ballast of a specified size. The labour charges incurred, if any, were only incidental to the supply of ballast. The training out the ballast stacked does not also make any difference. In the conditions of the agreement, the contractor requests the railway authorities to supply the ballast train on payment of fixed charges on the day basis and the railway authorities supply the train. The contractor simply loads the trucks and unloads the same with the help of his own labour as per the contract, near the railway lines.

15. We shall now see the additional material placed before us by the petitioner, i.e., the booklet containing the general conditions of contract. At the outset it must be said that these general conditions are so wide and meant to cover all types of contracts. We have to pick up only such conditions which are relevant to the contracts with which we are concerned. The learned counsel, however, has invited our attention to certain clauses and we shall refer to the same. Clause 1(1)(h) defines 'works' as the works to be executed in accordance with the contract. Clause 1(1)(i) defines 'specifications' for materials. Clause 6 lays down that no land belonging to or in possession of the railway shall be occupied by the contractor without the permission of the railway, and the contractor shall not use or allow to be used the site for any purpose other than that of executing the works. Clause 7 lays down that the contractor shall not assign or sub-let the contract. Clause 11 lays down that the railway may agree to allow the contractor the use of the ballast or material trains under such conditions as shall be specially prescribed. Clause 12 lays down that the contractor shall place and keep a responsible agent at the works during working hours. Clause 14 lays down that the contractor shall not sell or otherwise dispose of or remove except for the purpose of the contract the sand, stone, clay, ballast, earth, rock or other materials which may be obtained from any excavation. Clause 16 lays down that the earnest money deposited by the contractor with his tender will be retained by the railways for the due and faithful fulfilment of the contract by the contractor. Clause 17(1) lays down that subject to any requirement in the contract as to the completion of any portion or portions of the works before completion of the whole, the contractor shall fully and finally complete the whole of the works comprised in the contract. Clause 20(1) lays down that the Engineer's instructions should be complied with and the contractor, however, shall not be relieved from responsibility for the due performance of the works in all respects. Clause 21 lays down that any instructions or approval given by the Engineer's representative to the contractor shall bind the contractor as though it had been given by the Engineer. Clause 22 lays down that the whole of the works shall be executed in perfect conformity with the specifications and drawings of the contract. Clause 26 is to the effect that the contractor shall place and keep on the works at all times efficient and competent staff to give the necessary directions to his workmen and shall employ only such supervisors, workmen and labourers, who are careful and skilled. Clause 27 lays down that the whole of the works and/or supply of materials provided in the contract shall be executed in the best and most substantial workmanlike manner with the materials of the best quality and that the Engineer or his representative shall be entitled to order from time to time, the removal of any materials which are not in accordance with the specifications or drawings. Clause 32 lays down that the materials and plant brought by the contractor upon the site or on the land occupied by the contractor in connection with the works and intended to be used for the execution thereof shall immediately be brought upon the site and shall be deemed to be the property of the railway. Clause 33 lays down that the contractor shall take all reasonable care of all tools, plant and materials. Clause 36 lays down that the contractor shall, on the order of the Engineer, suspend the progress of the works or any part thereof. Clause 37 is to the effect that the rates entered in the accepted schedule of rates of the contract are intended to provide for works duly and properly completed in accordance with the general and special conditions of the contract. Clause 54 lays down that the contractor shall be responsible to ensure compliance with the provisions of the Minimum Wages Act. Clauses 55 to 59 also deal with this aspect, viz., about the welfare of the labour, which has to be taken care of by the contractor. Clause 60 lays down that the railway shall be entitled to determine and terminate the contract at any time. These are some of the clauses to which our attention was drawn.

16. The learned counsel for the petitioner relying on the above-mentioned clauses contended that the contractor has to work in a workmanlike manner and the contracts have to be done according to the specifications and subject to the supervision of the Engineers and, therefore, the main part of the contract is the work carried out by the labour, and the supply of ballast is only insignificant and, therefore, the agreements amount to contract for work and labour. In our opinion, these general conditions filed as additional material apply to all works in general as already mentioned and such of the conditions, which are only relevant to the nature of the work undertaken, have to be considered. This we shall do at a later stage after considering the other additional materials.

17. The learned counsel for the petitioner relied on a certificate issued by the Additional Chief Engineer, South Central Railway, dated 11th August, 1978. It appears this was also filed before the Supreme Court and their Lordships felt that the certificate is not clear and the question as to the nature of the contract cannot be decided on the basis of that letter without further material. This certificate is given as requested by the contractor by his letter dated 2nd August, 1978. This certificate reads thus:

With reference to your letter asking for a certificate clarifying the nature of works contract for supply and stacking of stone ballast on the railways, the following certificate is furnished:

It is certified that the contracts for supply and stacking of stone ballast on the railway are works contracts and are governed by the general conditions of contract applicable to works contracts. The contracts for supply and stacking of stone ballast executed by M/s. Anamolu Seshagiri Rao are works contracts and not contracts for sale of goods. The stone ballast on the railways is used for the railway track and has to be manufactured to a particular specification and ordinary stone metal used for other works cannot be used as ballast, In railway contracts for supply and stacking of stone ballast the contractor gets the ballast manufactured at the quarries, carries it to the site along the track. After the ballast is dumped from the lorries the ballast is spread in continuous lengths along the railway track by the contractor employing unskilled labour. The spreading and stacking of ballast along the track is done by the contractor according to the requirements and directions given by the Engineer-in-charge. The rate for payment in the ballast contracts is a composite rate for both supply of stone ballast and for rendering of services of spreading, stacking, etc.

18. It is rather surprising as to how the Additional Chief Engineer could decide the legal question whether the contract in question is works contract or a contract for sale of goods. However, as to the description of work carried on, it is simply mentioned in the certificate that the stone ballast has to be manufactured to a particular specification. It is also further mentioned that the contractor gets the ballast manufactured at the quarries and that after it is stacked it is spread in continuous lengths along the railway track employing unskilled labour. The certificate further mentions that the spreading and stacking of ballast along the track is done by the contractor according to the requirements and the directions given by the Engineer-in-charge. The rate for the payment of the ballast contract is a composite rate.

19. The learned counsel relying very much on the word 'spreading' used in this certificate strenuously contended that it is a works contract inasmuch as the spreading of the ballast on the railway track amounts to an accretion to the railway line and an improvement also. But it must be noted that even the certificate does not show that the contractor spreads the ballast on the railway track as such and terraces the same which can be said to be a repair to the railway line. This letter simply says that after the ballast is dumped from the lorries it is spread in continuous lengths along the railway track by the contractor employing his own unskilled labour. It is also mentioned therein that the spreading and stacking along the railway track is by the contractor according to the requirements and directions given by the Engineer-in-charge. It only shows that for convenience sake the ballast is stacked along the railway line. However, this theory of spreading is developed for the first time after the appeal has been filed before the Supreme Court. Originally, in the writ petition, in paragraph 3, it is stated thus:

The petitioner submits that the execution of the works contracts undertaken by the firm under the aforesaid agreement involved the following operations:

(1) Breaking, ballasting or quarrying of boulders from outside railway land.

(2) Converting boulders into required sizes of stone ballast.

(3) Transporting the broken stone ballast by the lorries to the site of the work, which is generally situated along the railway line or at different places in the station yards.

(4) Screening stone ballast from any dust and removing undersized or oversized stone.

(5) Stacking the ballast along the railway line or in station yards or over banks or in cuttings.

(6) Training out or leading into the track the stone ballast from the stacks is also entrusted to be done by the contractor in certain cases.

20. In the affidavit, it is further stated that all the contracts are of identical nature. It can, therefore, be seen that in the original plea of the contractor he did not say that he has to spread the ballast along the railway line. After the Supreme Court has remanded, the petitioner has filed C.M.P. No. 6570 of 1978, in which he has filed an additional affidavit with a prayer that the contents therein may be treated as part of the affidavit in Writ Petition No. 3645 of 1971. In paragraph 4 of the additional affidavit, it is mentioned thus:

I submit that the execution of works contracts undertaken by the petitioner-firm involves the following operations:

(i) Breaking, ballasting or quarrying of boulders.

(ii) Converting boulders into required sizes of stone ballast as per the specifications of the engineering department of the railways.

(iii) Transporting the broken stone ballast by the lorries to the work site, which is generally situated along the railway line.

(iv) Screening stone ballast from any dust and removing undersized or oversized stones.

(v) Spreading of ballast along the railway line to repair or make up the deficiency thereby embedding the ballast to the railway track.

(vi) In order to carry out the work of the stacking and spreading of ballast alongside the railway line, the petitioner had to make the passage for the movement of lorries by filling the pits and paying compensation to the landowners if the lorries were to pass from such fields, cutting the bushes and shrubs, repairing of bridges on irrigation canals and drains and spread the material brought by lorries from the quarry on the railway lines by engaging coolies as per the specifications in the agreement and as directed by the Engineers of the railways under their supervision and control.

21. Even in this additional affidavit, in paragraph 4(iii), 'transporting the broken stone ballast by the lorries to the work site, which is generally situated along the railway line' is mentioned as one of the works. In paragraph 4(v) 'spreading of ballast along the railway line to repair or make up the deficiency thereby embedding the ballast to the railway track' is mentioned. It is only for the first time in this paragraph the spreading along the railway track is mentioned. There is no basis for this whatsoever. Even if we accept that there was such spreading along the railway line, we are not able to see any difference. None of the contracts shows that spreading as such was there. Even otherwise, the spreading claimed is only along the railway line and it is not the contractor's job to repair the railway line. The next averment, made in paragraph 4(v) for the first time, viz., to repair or make up the deficiency was never made except in this additional affidavit filed after the Supreme Court remanded the case. Even the certificate given by the Additional Chief Engineer does not mention that the contractor has to do any repair. The above aspects only show the ingenious attempt on the part of the petitioner to bring the contracts under the purview of 'works contracts'. It is not in dispute that the contractor was not under an obligation to repair the track. The spreading along the railway line, even if accepted to be there, does not amount to repair of the line. That apart, even the Additional Chief Engineer has mentioned in the certificate that unskilled labour stack and spread the ballast along the railway line. Clause II in each of the agreements simply mentions 'supply and stacking of stone ballast along the railway track for making up deficiency', and in none of the contracts there is a mention that the contractor has to spread the ballast. We are not prepared to give any importance to the letter of the Additional Chief Engineer which is not based on the terms of the contract when it says that the contractor has to spread the ballast along the railway line. Even if the Additional Chief Engineer's word that there was 'spreading' is accepted, still it would not make any difference because it is only incidental to the supply of ballast. This belated theory of spreading, which is not based on the terms of the contract, is only an attempt by the contractors to bring the contracts within the purview of 'works contracts'. This letter of the Additional Chief Engineer was filed for the first time before the Supreme Court along with the letter of the contractor in which he had requested for such a certificate from the Additional Chief Engineer. Their Lordships in their judgment mentioned that the appellants before them have produced two certificates from the Additional Chief Engineer (Construction). We have asked the learned counsel whether in fact two certificates were produced. To this, the learned counsel, who was also present before the Supreme Court at the time of arguments in the case, clarified before us that the two certificates mentioned in the judgment of the Supreme Court are referable to the letter of the contractor and the certificate of the Additional Chief Engineer, and admitted that no other certificate was filed before the Supreme Court. We have made a special mention about this aspect in view of the fact that only one certificate is filed before us as the additional material.

22. In this context, it is also necessary to notice the additional material filed by the learned Government Pleader. The additional material filed by the learned Government Pleader consists of a letter by the Commercial Tax Officer dated 4th August, 1978, and addressed to the Senior Divisional Engineer, South Central Railway, Vijayawada, seeking clarification, and the reply of the Divisional Engineer. In addition to these two letters, the Government has also filed an additional counter-affidavit denying the fresh averments made by the petitioner. The Commercial Tax Officer in his letter R.C. No. 1029/72 dated 4th August, 1978, addressed to the Senior Divisional Engineer, South Central Railway, Vijayawada, sought certain clarification so that necessary material could be placed before the Supreme Court. The relevant portions of the letter are as follows:

Sri T.V.S. Narasimhachary, Advocate on record, Supreme Court of India, New Delhi, required the following information in connection with the Civil Appeals Nos. 1784 to 87 of 1972 stand posted for hearing on 17th August, 1978, at the Supreme Court of India, New Delhi. So I request you to supply the following information so as to enable me to send the same to the Advocate on record, New Delhi.

(i) Copies or originals in agreements Nos. 19, 47, 141 of 1964; 18, 15, 168 of 1965; 74, 75, 76, 5, 4 of 1966; 18, 59, 30, 93, 58 of 1967; 7 of 1968; 22 of 1969; 24 to 28 of 1969.

(ii) Copies of the specifications/conditions specified in each of the agreements.

(iii) Enquire from the South Central Railway whether they have any Railway Manual specifying standardised contract.

(iv) A certificate from the railway, whether the contract contemplates spreading of the ballast.

(v) Enquire from the railway whether maintenance is also part of the contract, if so, details of the same.

(vi) Please send a note on the following:

(a) What is meant by stacking of ballast?

(b) What is meant by training out of ballast?

(c) What is meant by loading of trucks by ballast?

(d) Does stacking imply spreading of ballast along the tracks?

(e) Is the work of spreading out of the ballast on the track called training out only when train is actually used? If so, what is called, when a train is not used and is done manually?

(vii) Whether, in fact, training out or spreading out ballast on the track was done by the contractor under all the contracts in question?

23. To this, the Divisional Engineer gave the following reply, which is dated 5th August, 1978:

With reference to the letter cited above, we express our inability to furnish the particulars required, vide items (i) and (ii) of your letter cited above immediately, as the records are not readily available and they have to be traced out as they pertain to the years 1965 to 1967. However, efforts are being made to trace the records and you will be advised in due course to depute your staff to take copies of the same.

Particulars required, vide items (iii) to (vii), are furnished hereunder:

(iii) There is no manual separately for the standardised contracts alone. But there are manuals specifying instructions with regard to the award of the contract on works, etc. They are (1) Way and Works Manual, (2) Engineering Code, (3) General Conditions of Contract.

(iv) Contracts are awarded for the following types of works for supply of ballast, dumping and training out:

(1) Mere supply at depots.

(2) Supply at depot and training out by departmental wagons supplied for this purpose.

(3) Supply at depot and training out by contractors' wagons hired for this purpose.

(4) Mere supply of ballast alongside the track.

(5) Supply of ballast alongside the track and leading and dumping the same into the track.

(v) Maintenance period is a condition in the contract agreement. But, as far as ballast supply is concerned, no maintenance period is provided in the contract agreements.

(vi)(a) Ballast should be stacked on the railway level ground as directed by the Engineer-in-charge which should be made uniform with template and should be moderately of large size. The stacks shall be built up as close to the track. The contractor shall clear and level the ground for this purpose at his cost.

(b) The collected ballast at the depots will be loaded by the contractors' labourers into the departmental wagons and unloaded by the contractors' labourers at the spots specified by the Engineer-in-charge. This operation is called 'training out of ballast'.

(c) Departmental wagons will be placed in the ballast siding to facilitate loading of the ballast collected at the depot. Loading of ballast collected at the depot into the departmental wagons is called loading of trucks by ballast.

(d) Stacking ballast does not imply spreading of ballast alongside the track. Separate item with rate will be provided in the agreement for this purpose.

(e) When the train is not used, it is called as 'leading the ballast and dumping into the track'.

(vii) It is not a fact that training out or dumping of the ballast is being done always by the contractors, unless this item is specifically provided in the contract agreement.

24. It can be seen that the Divisional Engineer is directly connected with the works and the clarifications given by him clearly show that stacking ballast does not imply spreading of ballast alongside the railway track. The relevant clause in every contract also confirms what the Divisional Engineer has stated in his letter. It thus becomes clear that the contractors have devel6ped the theory of spreading, for the first time, when the appeals were pending before the Supreme Court, by filing the letter of the Additional Chief Engineer, which is rather vague. This plea is clearly contrary to the terms of the contracts and the clarification given by the Divisional Engineer also confirms the same. After a careful perusal of the entire material including the additional material, we have no hesitation whatsoever in holding that spreading of the ballast on the railway track was never a part of the contract.

25. We shall now see whether the terms of the contract when read along with the relevant general conditions, which are placed before us by way of additional material, indicate in any manner that what was agreed amounts to works contracts. From the terms, which we have already referred to, when analysed, the following conclusions can be arrived at:

(1) The execution of the works undertaken by the contractors involves breaking the stones into specified sizes in the quarries for which the contractors themselves have to make arrangements.

(2) Transporting and supplying the ballast by lorries to the site of the work and stacking the same along the railway track.

(3) In some cases, where the ballast trains are supplied by the railways, the contractors have to load the stacked ballast into the wagons by their own labour and unload it at the spots specified by the Engineer-in-charge, which is called 'training out the ballast'.

(4) The agreements do not contemplate dissecting the value of the ballast supplied and the value of the work and labour bestowed.

(5) The payments are to be made at the stipulated rate as per the measurements taken after stacking the ballast.

(6) None of the terms in any of the contracts shows that the contractor had to do the spreading on the railway line and carry out any repairs by himself.

(7) In stacking along the railway line the contractors use only unskilled labour (vide the Additional Chief Engineer's letter).

(8) As per the special conditions attached to each of the contracts, the contractor has to make his own arrangements to obtain the ballast from the quarries and the quarries do not belong to the railway.

(9) All these contracts further show that the supply and stacking is only for making up the ballast deficiency. The contractors' job is over when they stack the ballast along the railway line.

26. If we carefully consider all from the above-mentioned aspects of the contract, it becomes clear that the job of the contractors was to supply the ballast of required size, and whatever other services rendered are only incidental to the execution of the contract of supply of the ballast. The stacking along the railway line or training out the ballast along the railway line is not done by any skilled labour and these services rendered by the contractor are only incidental to the supply of the ballast. That being so, we are unable to see as to how some of the general conditions relied upon can alter the nature of the contract. After carefully going through the general conditions, we are satisfied that only some of them can be relevant. That is why there are special conditions attached to the contract to which we have already adverted. Clause 7 of the general conditions does not apply because the contractors themselves have to supply the ballast and the railway is not concerned in what manner they collect the ballast. Clause 11 simply deals with the use of the ballast trains and, therefore, it does not alter the character of the contract. Clauses 22, 26 and 27 lay down that the contract should be done in a workmanlike manner and to the specifications subject to the supervision of the engineers. The other clauses are not relevant. Therefore, the general conditions do not in any manner alter the nature of the contracts, which are intended only to supply the ballast.

27. We shall now refer to some of the decisions in which to some extent the difference between a contract for sale and a works contract has been pointed out. In Government of Andhra Pradesh v. Guntur Tobaccos Ltd. [1965] 16 S.T.C. 240 (S.C.), their Lordships, Shah and Sikri, JJ., as they then were, who spoke for the court, observed that there should be an intention on the part of the parties to sell the very goods for money consideration which were used in a contract of work, viz., that there must be a term in the contract for the sale of goods from one party to the other. Their Lordships further observed thus:

A contract for work in the execution of which goods are used may take one of three forms. The contract may be for work to be done for remuneration and for supply of materials used in the execution of the works for a price; it may be a contract for work in which the use of materials is accessory or incidental to the execution of the work; or it may be a contract for work and use or supply of materials though not accessory to the execution of the contract is voluntary or gratuitous. In the last class there is no sale because though property passes it does not pass for a price. Whether a contract is of the first or the second class must depend upon the circumstances; if it is of the first, it is . a composite contract for work and sale of goods; where it is of the second category, it is a contract for execution of work not involving sale of goods.

28. After referring to some of the decisions cited, their Lordships observed:

Whether a contract for service or for execution of work involves a taxable sale of goods must be decided on the facts and circumstances of the case.

29. In Commissioner of Sales Tax, M.P. v. Purshottam Premji [1970] 26 S.T.C. 38 (S.C.), the Supreme Court held thus:

The primary difference between a contract of work or service and a contract for sale of goods is 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 materials used by him may have been his property. In the case of a contract for sale, the thing produced as a whole has individual 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 thereto 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 be an agreement express or implied relating to the sale of goods and completion of the agreement by passing of title in the very goods contracted to be sold. Ultimately the true effect of an accretion made pursuant to a contract has to be judged, not by an artificial rule that the accretion may be 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.

30. In an unreported judgment of the Supreme Court in Sentinel Rolling Shutters and Engineering Company Pvt. Ltd. v. Commissioner of Sales Tax Since reported in [1978] 42 S.T.C. 409 (S.C.), (Civil Appeal No. 1001 of 1977 dated 12th September, 1978), it is again observed thus:

The difficulty, however, lies not in the formulation of the tests for determining when a contract can be said to be a contract for sale or a contract for work and labour, but in the application of the tests to the facts of the case before the court. The distinction between a contract for sale and the contract for work and labour has been pointed out by this court in a number of decisions and some tests have also been indicated by this court, but it is necessary to point out that these tests are not exhaustive and do not lay down any rigid or inflexible rule applicable alike to all transactions. They do not give any magic formula by the application of which we can say in every case whether a contract is a contract for sale or a contract for work and labour. They merely focus on one or the other aspect of the transaction and afford some guidance in determining the question, but basically and primarily, whether a particular contract is one for sale of goods or for work and labour depends upon the main object of the parties gathered from the terms of the contract, the circumstances of the transaction and the custom of the trade.

31. The Supreme Court, after referring to a passage in Halsbury's Laws of England, further observed:

The primary test is whether the contract is one whose main object is transfer of property in a 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 or it is carrying out of work by bestowal of labour and service and materials are used in execution of such work.

32. From the above decisions, the following broad principles to differentiate between a contract for work and labour and contract for sale can be gathered. In the execution of a contract some materials may be used and the property in the goods so used may pass to the other party. That fact by itself is not decisive of the nature of the contract. In some cases, the passing of the property may be ancillary to the primary contract. In the contract of sale, the thing produced by the person has individual existence as the sole property of the party, who produced it, at sometime before delivery, and the property therein passes only under the contract relating thereto to the other party for a price, and to constitute a sale there must be an agreement, express or implied, relating to the sale of goods and completion of the agreement by passing of title in the very goods contracted to be sold. In a contract of sale, the main object is the transfer of the property and the delivery of the possession of the property, whereas the main object in a contract for work is not the transfer of the property, but it is one for work and labour. However, there is no well-settled or a standard formula by which one can distinguish a contract for sale from a contract for work and labour and it depends upon the facts and circumstances of each case.

33. We have already carefully analysed the terms of the contracts in question and held that they involved the supply of ballast and stacking the same along the railway line. The dominant intention in these contracts is delivery of the ballast, and the labour involved is only incidental and ancillary. One other significant factor to be noted is that the railway department has no control over the actual manufacture of the ballast. The contractor can sell away the ballast produced by him to third parties also. The railway conies into the picture only after the contractor stacks the material along the railway line. Thereafter, the measurements of the stacked material, which should be according to the specifications, are taken and payments are made on the actual items operated. In the case of training out the stacked ballast, the contractor has to obtain in writing from the Assistant Engineer-in-charge the details of the quantities of the ballast to be trained out. The contractor has to pay for the ballast train supplied by the railway for this purpose. It can, therefore, be seen that the ballast produced has individual existence as the sole property of the contractor at sometime before delivery and the property therein passes to the railway under the contract for a price. The stacking or training out the ballast is only incidental or subsidiary. In other words, the contracts were mainly for transfer of the property. Applying the principles laid down by the courts, we have no hesitation in reaching the conclusion that these are contracts only for sale of goods and, therefore, the assessee is liable to pay the sales tax.

34. We shall now refer to some of the decisions relied upon by the learned counsel for the petitioners. Before doing so, we must point out that the learned counsel endeavoured to pick out a particular individual aspect of the contract and cited decisions where a similar aspect along with other important aspects are taken into account by the courts in holding that the particular contract was a works contract. In State of Madras v. Richardson and Cruddas Ltd. [1968] 21 S.T.C. 245 (S.C.), the Supreme Court had to consider a case where the contract was for supply and erection of steel structures for a sugar factory and it was an inclusive price for the work of fabrication of bottle cooling equipments required in the premises of the customers and for installation of the equipments. The contractor undertook to fabricate different parts of the unit according to the special requirements of the customer and to install the unit in the premises of the customer. Having considered that particular set of facts, their Lordships held that the contract was for supplying for an inclusive price a specially designed fabricated unit to be assembled and installed by specially trained technicians in the premises of the customer and it was not a contract for sale of a unit or different parts of the unit as specific goods, but was a works contract. The learned counsel relying on this decision contended that in the contracts in question the price is an inclusive one, viz., the rate of payment per unit includes the price of the material as well as the labour charges and, therefore, they are works contracts. We are unable to agree. In the above decision, the contract was for fabrication, supply and erection of steel structure to be assembled and installed by specially trained technicians and it may be that the price was an inclusive one. But that by itself is not a decisive test. In the instant case, the ballast produced has an individual existence and the labour charges included in the rate of payment are only incidental to the supply.

35. The next argument of the learned counsel for the petitioners is that the supply of ballast and the stacking of the same is an accretion to the railway property resulting in the improvement of the railway line. It is also the contention of the learned counsel that in A. Seshagiri Rao and Co. v. State of Andhra Pradesh (1973) 1 An. W.R. 111, the Division Bench, which heard these writ petitions, also made an observation that stacking of the ballast along the railway line or cutting the ballast amounts to an improvement of the immovable property. Relying on this passage, the learned counsel sought to contend that the contracts are 'works contracts'. We have carefully gone through the passage. What the learned Judges meant was that for stacking of the ballast the railway banks have to be cut and levelled. In a way it may be an improvement, but that is not the main object of the contract. It was also incidental for stacking the ballast. In support of this contention, viz., that supply and stacking of the ballast is an accretion, he relied on a decision in T.V.S. Iyengar and Sons (P.) Ltd. v. State of Madras [1970] 25 S.T.C. 160. It was a case of supply of bus bodies constructed and fitted on the chassis provided by the customers. The learned Judges observed thus:

The test often to be applied to is when and how the property of the dealer in such a transaction with the materials used by him passes to the customer: is it by transfer at the time of delivery of the finished article as a chattel or by accession during the process of a work on affixture or fusion to the movable property of the customer? If it is the former, it is a sale of goods; if it is the latter, it is a works contract.

36. We are unable to see as to how, in the instant case, the supply of ballast amounts to fusion or an accretion or an affixture to the railway line. It is a simple case of supply of ballast and stacking the same with the help of unskilled labourers. We have already pointed out more than once that the spreading or terracing the railway line with the ballast was not contemplated in the contract at all. Therefore, this decision has no application to the facts of the present case.

37. The next plea of the petitioners' learned counsel is that some skilled labourers were brought from Salem district to break the boulders into the required size of ballast and, therefore, this is a contract for labour. Even if some workers from Salem district were employed for breaking the boulders before supply, it cannot be said that it ceased to be a contract for supply of the ballast. What all that had happened before handing over the goods to the railways is not a factor for consideration. However, the very certificate given by the Additional Chief Engineer itself shows that the contractors employ only unskilled labour. The learned counsel relied on the two decisions of the Supreme Court, while laying stress on 'skill and labour' that could have been used in the manufacture of the ballast. In Assistant Sales Tax Officer v. B.C. Kame [1977] 39 S.T.C. 237 (S.C.), the question that came up for consideration was when a photographer undertakes to take a photograph, develop the negative or do other photographic work and thereafter supply the prints to his client, whether it can be said that it amounted to contract of sale. The learned Judges of the Supreme Court pointed cut that the contract on the contrary is for use of skill and labour by the photographer to bring about a desired result. In the instant case, we cannot say that any special skill and labour are used in breaking the stones into ballast of some required size. Therefore, the above decision has no application to the facts of the present case. The other decision relied on by the learned counsel is Northern India Caterers v. Lt. Governor of Delhi A.I.R. 1978 S.C. 1591; since reviewed by the Supreme Court in [1980] 45 S.T.C. 212 (S.C.). In that case, the question that arose was whether the service of meals to casual visitors in a restaurant located in a hotel in which lodging and meals are provided to residents, is taxable as a sale or not. Their Lordships of the Supreme Court held that the service of meals to the casual visitors in a restaurant is not taxable inasmuch as the supply of meals was essentially in the nature of service. Therefore, this case also has no relevancy to the facts of the instant case, as no such service is involved. The contractors simply manufacture the ballast and sell the same as goods to the railways.

38. It is next contended that the contract is for the supply of ballast and stacking the same or training out the same and it is an indivisible one, viz., the labour charges and the cost of the material are not divisible and, therefore, the contracts amount to works contracts. In support of this plea, the learned counsel relied on State of Rajasthan v. Nenu Ram [1970] 26 S.T.C. 268 (S.C.) and Vanguard Rolling Shutters and Steel Works v. Commissioner of Sales Tax, U.P. [1977] 39 S.T.C. 372 (S.C.) These two cases are clearly distinguishable. The first one is a case where the contract was for supplying and fixing wooden windows and doors together with frames and painting them in the construction of the police lines building. One of the terms of the contract was that the frames have to be supplied and fixed at the site along with the masonry work and the amount which was payable to the respondent was for the entire work. Under these circumstances, the court held that the contract was one and indivisible and that the goods were not sold as movables. In the latter decision, the contract was to fabricate the rolling shutters, bring them to the site of the customers at the cost of the customers and thereafter erect them at the premises. The Supreme Court held that the contract was a works contract. It can be seen that the fabrication of the shutters and the actual fitting at the premises was a continuous one and was completed only when the erection was completed in everyway. These facts are different and the decision is distinguishable, as the nature of the contract in the case before us is quite different. Two other decisions relied on by the learned counsel in this context are: State of Rajasthan v. Man Industrial Corporation Ltd. [1969] 24 S.T.C. 349 (S.C.) and Government of Andhra Pradesh v. Guntur Tobaccos Ltd. [1965] 16 S.T.C. 240 (S.C.). In the former case, again it was a contract for fabricating and fixing certain windows in accordance with specifications, designs, drawing and instructions. The Supreme Court held that there were no two contracts, one of sale and another of service, and the fixing of windows to the building was not incidental or subsidiary to the sale, but was an essential term of the contract. In the latter case, the dealer was carrying on the business of re-drying in its factory raw tobacco entrusted to it by its customers and to pack the re-dried tobacco and deliver it to the customers. There was no separate charge for the value of the packing materials used. On the question whether the value of the packing materials was assessable, the Supreme Court held that in the absence of any evidence from which contract to sell 'packing material' for a price might be inferred, the use of the 'packing material' by the assessee must be regarded as in the execution of the works contract. It can be seen that the goods that were delivered to the customers were along with the packing material and, therefore, the packing material was not separately assessable as the same was not divisible. These two decisions also are not helpful to the petitioners, as we have already held that the labour involved in these contracts is only incidental and ancillary.

39. Relying on some of the conditions in the contract, viz., that the contractor should work in a 'workmanlike manner' and in full co-operation with the railways, the learned counsel for the petitioners sought to contend that these conditions change the character of the contract, particularly in view of the fact that there is supervision of the engineering staff also. In this regard, he relied on State of Gujarat v. Variety Body Builders [1976] 38 S.T.C. 176 (S.C.). In that case, the agreement was for the construction of railway coaches on the underframes supplied by the railway. In the agreement it was provided that the work of building bodies would be carried out by the contractor in the area of the railway workshop and that the contractor should provide all essential equipment for satisfactory execution of the work. He was responsible for safe custody of the carriages and the railway authorities were free to inspect the work. Having regard to these and several other conditions in the agreement, the Supreme Court held that the intention of the parties was not to transfer any completed railway coach and the end-produce, being the railway coach, was the result of work and labour and materials of the contractor as well as of the railway as also of the latter's constant supervision and control and, therefore, the essence of the contract or the reality of the transaction as a whole indicated that the contract was a contract for work and labour. It can be seen that the terms in the agreement therein are quite different. In the instant case, as per the agreement the contractor has to make his own arrangements to obtain the ballast, and the railway has no control over the quarries worked by the contractor and they do not belong to the railway. Therefore, this case is distinguishable.

40. We shall now refer to some of the decisions in which the contract for supply of ballast to the railway directly came up for consideration. In State of Mysore v. S.R. Bhide [1969] 24 S.T.C. 446, the contract was for collection and training out the stone ballasts. Then he had to spread the ballasts on either side of the railway track. The Mysore High Court held that it was not possible for the Commercial Tax Officer to identify any particular portion of the remuneration paid to the assessee as the price of the stone ballasts and, therefore, it cannot be subjected to sales tax. The facts in that case show that the contract was for training out the ballast collected. The learned Judges have not referred to any of the decided cases laying down the difference between a works contract and a contract for supply of goods. We are unable to agree with this view taken by the Mysore High Court. However, as observed by the Supreme Court in the unreported judgment in Sentinel Rolling Shutters and Engineering Company v. Commissioner of Sales Tax Since reported in [1978] 42 S.T.C. 409 (S.C.), (Civil Appeal No. 1001 of 1977 dated 12th September, 1978), the intention of the parties has to be gathered from the terms of the contract, the circumstances of the transaction and the custom of the trade. The Mysore High Court has not considered the nature of the work undertaken under the contract applying the necessary guidelines for differentiating the two types of contract from one another. There are however decisions of the other High Courts which are directly on the point. Mooljee Ramjee and Sons v. Deputy Commissioner (Commercial Taxes), Madurai Division [1966] 17 S.T.C. 255, is a case where the ballast had to be collected and stacked alongside the railway line for a length of about 10 miles. The contractor got a permit from the concerned Revenue Divisional Officer to quarry stone jelly. The agreement was for collection and training out that jelly. The Division Bench of the Madras High Court pointed out that the term 'training out' appears to be a technical one used in similar contracts for meaning that the contractor is obliged to deliver the material at the railway siding between specified points. The learned Judges also noted the fact that the railway did not take out a licence for quarrying and, on the other hand, the assessee got a permit from the Government for quarrying and he was obliged to deliver the quarried goods to the railway. The learned Judges noticing these aspects observed thus:

It may very well happen that the rate fixed in the contract will include the charges for quarrying the material and also the expenses of transportation. But that will not in any way affect the position that there was a transfer of property in the quarried jelly from the assessees to the railway at the place of delivery near the railway siding,... If it was the railway that had taken out the quarrying lease and thereafter they had entered into an agreement with the assessees for quarrying, then the mineral would be the property of the railway as soon as it was won from the quarry, and there would not be any question of transfer of property therein from the assessees to the railway. But that is not the case here. That the assessees were obliged to deliver the quarried goods only to the railway, and that the quarrying permit debarred them from selling it to anybody else would not make any difference to the question at issue. This obligation arose from a term in the permit for quarrying, that no seigniorage would be levied if the goods were given to the railway. If the assessees had sold the materials to somebody else, it would only attract to them some penalties for non-compliance with a condition in the quarrying licence; but it will not affect the position that the jelly became the property of the assessees as soon as it was quarried and that only after transport to the railway siding and delivery it became the property of the railway.

41. The learned Judges after referring to some decided cases held on the facts and circumstances that the transaction amounted to sale of ballast to the railway. This decision applies on all fours to the case on hand. The learned counsel however relied on the decision of the Supreme Court in Commissioner of Sales Tax v. Purshottam Premji [1970] 26 S.T.C. 38 (S.C.), which was also a case of supply of ballast. There the main features of the contracts were extracted thus:

The assessee was to quarry stones from the quarries belonging to the South Eastern Railway and he was to break those stones into pieces and convert them into ballast of a specified size and thereafter supply them to the South Eastern Railway.

42. On these facts, their Lordships were of the view that prima facie the South Eastern Railway was the owner of the ballast and the assessee's duty was only to do some work on the stones belonging to the South Eastern Railway administration. Their Lordships further observed that the fact that the railway had provided in the agreement that the assessee shall pay royalty due to the State Government does not in any manner detract from the legal position that the railway was the owner of the quarry and it was merely an arrangement for payment of a royalty. It can, therefore, be seen that the distinguishing feature is that the quarries belong to the railway and the payment of royalty by the contractor also does not make any difference. In the case before us, as pointed put by the Madras High Court in Muoljee Ramjee and Sons v. Deputy Commissioner (Commercial Taxes), Madurai Division [1966] 17 S.T.C. 255, the assessee cannot be considered to be the agent of the railway for the purpose of quarrying inasmuch as he himself has to make his own arrangements for obtaining the ballast from the quarries and the quarries do not belong to the railways. Therefore, in the decision in Commissioner of Sales Tax v. Purshottam Premji [1970] 26 S.T.C. 38 (S.C.), the facts are different and the said decision is not in any manner helpful to the petitioners. In Seth Pamandas Sindhi v. State of Madhya Pradesh [1963] 14 S.T.C. 74, a Division Bench of the Madhya Pradesh High Court held that where an assessee quarries the stones and supplies the same in the form of ballast to the railways at contract rates, it amounts to supply of ballast. We can notice another decision in Bakthavatsalu v. State of Madras [1963] 14 S.T.C. 832, where the assessee under the contract had to supply granite jelly of certain quality from certain specified quarries to the Neyveli Lignite Corporation. The rates of payment were fixed at so much per 100 c. ft. of the material and this varied according to the place of delivery. The Division Bench of the Madras High Court held that it is a case merely of supply of material. These are some of the cases where the courts have considered the contracts of supply of ballast and stacking, and they clearly held that they amount to contracts of sale.

43. We shall refer to a few decisions cited by the learned Government Pleader which also throw some light on the nature of the contract. In Patnaik and Company v. State of Orissa [1965] 16 S.T.C. 364 (S.C.), the assessee entered into an agreement with the State of Orissa for the construction of bus bodies on the chassis supplied by the Government. The agreement provided, inter alia, that the assessee was responsible for the safe custody of the chassis and the assessee had to construct the bus bodies in the most substantial and workmanlike manner and the contract should be carried on with all due diligence and the inspecting officers had the right to stop any work which had been executed very badly and the assessee was entitled to 50 per cent of the cost of body-building at the time of delivery and the rest one month thereafter. The majority of their Lordships of the Supreme Court, who heard the case, held that the contract as a whole was a contract for the sale of goods. This case was referred to in State of Gujarat v. Variety Body Builders [1976] 38 S.T.C. 176 (S.C.), wherein the assessee entered into contracts with the Western Railway for the construction of railway coaches. Their Lordships while approving the principles laid down in State of Gujarat v. Variety Body Builders (sic) however held that it depends on the facts and circumstances of each case. Yet another decision in Commissioner of Sales Tax v. S.R.U.S. Mandali Ltd. [1976] 38 S.T.C. 203 (S.C.), wherein the contract was for supply of kiln-burnt bricks to the Public Works Department. The nature of the work was described as 'manufacturing and supplying kiln-burnt bricks for construction'. The tender was described as 'supply of materials tender' and the assessee should supply at his own expense all tools and the materials to be supplied should be of best quality and in strict accordance with the specification and the contractor would receive payment for such materials only as were approved by the Executive Engineer or his assistant. Their Lordships of the Supreme Court, after referring to the various clauses of the agreement, held thus:

All the above terms relate to a stage in the process of proper and efficient manufacturing of bricks and are not inconsistent in a contract of sale. These terms do not appear to impinge on the character of the contract as one for sale of the bricks manufactured. The Government in its overall interest and anxiety for general welfare could insist on compliance with certain beneficial legal measures. It could also insist on certain terms which will ensure efficient production of the material. Provision against sub-letting when the land was given free by the Government is also understandable. All the above features do not negate the concept of a contract of sale of the bricks that are ultimately manufactured. The true test in this case is whether in making the contract brick produced was transferred as a chattel for consideration and we are clearly of the opinion that this has taken place in this case. The property in the bricks was entirely of the assessee. He had not only to manufacture them but also to stack them for facilitating delivery. The essence of the contract was, therefore, the delivery of the bricks after manufacture.

44. We are of the opinion that these observations apply to the contract in the present case with great force. The property in the ballast was entirely of the assessee. They have to manufacture the same and stack them for facilitating delivery. Therefore, the conclusion which is inescapable is that the essence of the contract was the delivery of the ballast after manufacture and the labour involved is only incidental to the supply of the ballast.

45. After a careful consideration of the entire material placed and the various decisions cited before us, we have, no hesitation in holding that the contracts in question are only for the sale of the ballast and not for work and labour. The contractors, therefore, were rightly assessed on the turnover of the supply of the ballast.

46. In the result, the writ petitions are dismissed with costs, one set in W.P. No. 3645 of 1971. Advocate's fee Rs. 150.


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