1. The Board of Revenue for Rajasthan has made this reference under Section 15(1) of the Rajasthan Sales Tax Act, 1954 (Act XXIX of 1954) for the opinion of this Court whether on a true construction of the terms of the contract entered in between the Man Industrial Corporation Ltd., Jaipur (hereinafter called 'the assessee') and the President of India the transaction amounted to a sale liable to sales tax.
2. Facts necessary for the disposal of this reference briefly stated are these: The assessee, which is a public limited company, carries on the business of fabricating steel doors, windows, sashes and works of allied nature at Jaipur. It entered into a contract with the President of India through the Central Public Works Department, Ajmer, for providing and fixing windows of four different specifications in the building constructed to house the office of the Accountant General at Jaipur. While offering to execute the work the assessee indicated as one of its conditions that besides the costs of the work he will charge sales tax extra. The Executive Engineer disputed this saying that no liability of sales tax arose where the goods were purchased for the use of the Government and insisted on the exclusion of this term from the agreement. We are unable to say whether this term was excluded from the agreement or not as the copy of the agreement is not on record. However, the Sales Tax Officer. Jaipur City, Circle 'B' while assessing the assessee for the year 1957-58 taxed it on Rs. 23,408 representing the amount received by it on this contract between the assessee and the Central Government despite objection. An appeal was preferred by the assessee before the Deputy Commissioner, Excise and Taxation who held that the Sales Tax Officer should re-examine the case of the assessee because the agreement in question consisted of two separable parts of (a) providing, and (b) fixing the windows, and the assessee was only liable for the amount covered by the first part of the contract. The assessee preferred a revision against this order before the Board of Revenue for Rajasthan, Ajmer, challenging the decision of the Deputy Commissioner. The Board by its order dated the 25th July, 1962, upheld the order of the Deputy Commissioner and dismissed the assessee's application. Thereupon the assessee made an application under Section 15(1) of the Sales Tax Act praying that a question of law arose out of the contentions raised by the assessee which deserved to be referred to this Court for its opinion. The Board in its order incidentally expressed the opinion that the contract of the assessee was indivisible and, therefore, the amount received by the assessee pursuant to it was not liable to tax and referred the following question for our decision. 'Whether of the proper interpretation of the contract between the applicant and the Executive Engineer, C.P.W.D., Ajmer, regarding the providing and fixing of the Steel Windows to the Accountant General's office at Jaipur and looking to the terms of the transaction of the type undertaken by the applicant, the Board were justified in holding that the contract was one for the sale of windows and taxable under the Rajasthan Sales Tax Act, 1954?'
3. Before proceeding to consider the contentions raised before us it is necessary to recall that the Board of Revenue while dismissing the revision application of the assesses observed that the assessee with a view to evade the payment of the sales tax did not separately quote the labour charges for fixing the windows which would be but a small proportion of the value of the total transaction and, therefore, it held that the Deputy Commissioner was right in directing the Sales Tax Officer to ascertain the labour charges for fixing the windows and deduct this amount from the total amount received for the contract of providing and fixing windows for the purpose of determining the taxable turn-over of the applicant. In view of these observations we are inclined to observe that the question as referred to us by the Board is larger in scope than the circumstances of the case require. Strictly speaking the question which arises for consideration is:
'Whether on the proper interpretation of the contract between the applicant and the Executive Engineer, C.P.W.D. Ajmer regarding the providing and fixing of the steel windows to the Accountant General's Office Jaipur and looking to the terms of the transactions of the type undertaken by the applicant the Board were justified in holding that the contract was divisible between two parts representing the sale of the windows and the labour charges in fixing the same and thus partly liable to sales tax?'
It is this question which we propose to answer.
4. The learned counsel for the assessee argued that having regard to the language of the tender that it was a contract for 'work', for 'providing and fixing special type steel windows as per approved drawing', namely, 'the senior architect drawing No. 3354.' etc. and 'the work was to be completed within six months', the transaction was not one of sale but for work. The specifications appended with the tender detailed the type of the work which was to be executed by the assessee and fitted in the office building of the Accountant General. The confirmation order which followed likewise employed phrases like 'providing and fixing' and unmistakably indicated the same intention that the contract was one for work and not of sale. Alternatively he urged that even if it was a composite contract then it was indivisible and not liable to sales tax. He placed reliance on the State of Madras v. Cannon Dunkerley & Co. (Madras) Ltd. 1958-9 STC 353: (AIR 1958 SC 560); Carl Still G. m. b. H. v. State of Bihar,1963-12 STC 449: (AIR 1961 SC 1615); State of Madras v. Voltas Ltd., 1963-14 STC 446 (Mad); Kailash Engineering Co. v. State of Gujarat, 1964-15 STC 574 (Guj); Government of Andhra Pradesh v. Guntur Tobaccos Ltd., 1965-16 STC 240: (AIR 1965 SC 1396) and Love v. Norman Wright (Builders) Ltd.; 1944-1 KB 484.
5. The learned Advocate General submitted that the contract was clearly a divisible contract consisting of (a) providing and (b) fixing, in which the latter part was merely nominal And insignificant. He supported the Board of Revenue which had upheld the order of the Deputy Commissioner, Excise and Taxation directing the Sales Tax Officer to re-examine the case of the assessee and determine his tax liability on the amount of goods provided by the assessee. He relied on Banarsi Das v. State of Madhya Pradesh, 1958-9 STC 388: (AIR 1958 SC 909); Krishna Roller Flour Mills v. State of Punjab, 1958-9 STC 439 (Punj); Srinivasa Pai v. Sales Tax Appellate Tribunal, Trivandrum, 1961-12 STC 80: (AIR 1961 Kerala 236); M. Ghosh v. State of Bihar, 1961-12 STC 154: (AIR 1961 Pat 272); Kays Construction Company v. The Judge (Appeals) Sales Tax Allahabad, 1962-13 STC 302 (All) & Mckenzies Ltd. v. State of Bombay, 1962-13 STC 602 (Born).
6. Let us examine these cases and the principles which emerge from them.
7. In Gannon Durkerley's case 1958-9 STC 353: (AIR 1958 SC 560) their Lordships of the Supreme Court discussed numerous decisions of the English Courts and came to the conclusion:
'To sum up, the expression 'sale of goods' in Entry 48 is a nomen juris, its essential ingredients being an agreement to sell movables for a price and property passing therein pursuant to that agreement. In a building contract which is, as in the present case, one, entire and indivisible--and that is its norm, there is no sale of goods, and it is not within the competence of the Provincial Legislature under Entry 48 to impose a tax on the supply of the materials used in such a contract treating it as a sale.'
Their Lordships also observed that the theory that it can be broken up into its component parts and as regards one of them it can be said that there is a sale must fail on both the grounds that there is no agreement to sell materials as such, and that property in them does not pass as movable.
8. In Carl Still's case, 1961-12 STC 449: (AIR 1961 SC 1615) a contract was entered into by the appellant with a company to set up a complete coke oven battery ready for production as well as by-products plants at Sindri. The appellant was to provide accessories and articles and render services described in the schedule for an all-inclusive price. The agreement provided that all material, brought to the site would become the company's property, but if they were destroyed by fire, tempest or otherwise the loss would fall not on the company but on the appellant. It was held by the majority of their Lordships of the Supreme Court that the contract was entire and indivisible for the construction of specific works for a lump sum and not a contract of sale of materials as such, and the Sales Tax Authorities had no right to impose a tax on the materials supplied in execution of that contract.
9. In Voltas's case, 1963-14 STC 446 (Mad) Messrs. Voltas Limited were assigned the contract for providing a building with a system of air-conditioning. The contract contained detailed particulars of the work that had to be done by the assessee and the different types of machinery that would be utilised in the fabrication of the air-conditioning unit. The company was to design the machinery, set it up in a particular manner, insulate the airpassage carrying humidified and chilled air to the various parts of the building, etc. for a total sum of about rupees seven lakhs. The Deputy Commercial Tax Officer assessed the assessee on a sum of Rs. 5 lakhs representing the assessable turnover of the works contract. It was held by the Madras High Court that in the facts and circumstances of the case, that there was no agreement between the contracting parties for the sale of any part of the machinery as such and the Tribunal was right in setting aside the assessment.
10. In Kailash Engineering Co.'s case, 1964-15 SCT 574 (Guj) it entered into a contract with the railway administration for the performance of the works of 'building, erecting and furnishing of third class timber coach bodies' on broad gauge underframes to be supplied by the railway administration. It was further provided that all materials and plant brought by the Kailash Engineering Co. upon the land will be deemed to be the property of the railway. It was held by the High Court of Gujarat that the contact was not a contract for the sale of goods, but was a contract for work and labour.
11. In Guntur Tobaccos's case, 1965-16 STC 240: (AIR 1965 SC 1396) their Lordships of the Supreme Court considered the case of a dealer carrying on the business of re-drying in its factory raw tobacco entrusted to it by its customers. The assessee re-dried the tobacco, packed it in packing materials purchased from (he market and delivered it to the customers. 'For re-drying each bale of tobacco the assessee charged the customers a certain sum but there was no separate charge for the value of the packing materials used. The assessee was assessed to sales tax under the Madras General Sales Tax Act, 1939, on the value of the packing materials, on the ground that there was a sale of the packing materials. The High Court found that the packing of the re-dried tobacco and its storage for the requisite period was an integral part of the re-drying process and held that there was no sale of the packing materials. Their Lordships of the Supreme Court upheld the decision of the High Court. They laid down that a contract for work in the execution of which the 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 he 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.
12. The King's Bench's case, 1944-1 KB 484 does not appear to render much assistance and need not be discussed.
13. In Banarsi Das's case, 1958-9 STC 388: (AIR 1958 SC 909) their Lordships of the Supreme Court reaffirmed the principles laid down in Dunkerley's case, 1958-9 STC 353: (AIR 1958 SC 560) and need not be discussed in detail.
14. In Kays Construction Company's case, 1962-13 STC 302 (All), a contractor undertook to build some passenger bogies for the railway. Under the contract, the under-frames were to be supplied by the railway. The superstructure over these underframes was to be constructed by the contractor according to the specifications, and a fixed price was to be paid for each bogie. This included the cost of all stores and fittings, etc. The contractor was assessed to sale tax. It was held by a learned Judge of the Allahabad High Court that the assessment should be quashed because the contract between the contractor and the railway was one indivisible contract which could not be split up into two separate contracts.
15. In Mckenzie's case, 1962-13 STC 602 (Bom) the High Court of Maharashtra found that the assessee who was to construct and deliver to the Government of India several motor bodies fitted on to the chassis supplied to them for a stated lump sum price per body, what was intended between the parties was sale or purchase of motor bodies as an article or chattel liable to sales tax.
16. In Krishna Roller Flour Mills' Case, 1958-9 STC 439 (Punj) the Punjab High Court considered the case of sales tax on materials used for packing non-taxable commodities. The learned Judges held that the transfer of property in the gunny bags and the payment of price are present in the transaction and must be deemed to be sale liable to sales tax.
17. Srinivasa Pai's case, 1961-12 STC 80: (AIR 1981 Ker 236), was a case of gunny bags which were used for packing food grains. The mice of the food grains included the price of the gunny bags. The turnover in respect of the gunny bags was held by the Kerala High Court liable to sales tax under the Act.
18. In M. Ghosh's case, 1961-12 STC 154: (AIR 1981 Pat 272) the learned Judges of the Patna High Court considered the case of a photographer who sold printed copies of photographs to his customers. He was held to be liable to sales tax.
19. The principles which are deducible from these decisions and which are relevant for the purposes of the case before us may be briefly summarised:
1. That the expression sale of goods is a nomen juris and implies a transfer of movable property from one person to another for consideration. It is not open to break up an indivisible complete- contract into its component parts and treat one part thereof as a sale. (See Cannon Dunkerley's case, 1958-9 STC 353: (AIR 1958 SC 560) and Banarsidas's case, 1958-9 STC 388: (AIR 1958 SC 909).
2. Where by virtue of a composite contract plants and machinery are fixed in the land of the employer by a contractor involving the application of technical skill and the employer is charged by means of an all inclusive price such a contract is an indivisible contract of works and is not a contract of sale. (See Carl Still's case, 1961-12 STC 449: (AIR 1961 SC 1615) and Voltas's case, 1963-14 STC 446 (Mad).
3. Even where a contractor affixes a structure on to a movable under-frame supplied by the employer and the contractor is paid an all inclusive price for the materials and work such a contract is not a contract for sale and liable to sale tax. (See Kailash Engineering Co.'s case, 1964-15 STC 574 (Guj) and Kays Construction Co.'s case, 1962-13 STC 302 (All); and contra see Mckenzie's case, 1962-13 STC 602 (Bom).
20. In the light of the above principles let us now examine the contract which is subject matter of controversy before us. A tender was submitted with a caption that the tender was for 'works' to be executed for the President of India. The work was specified in the under-written memorandum and was to be completed within the time stipulated in such memorandum at the rates stated therein, and in accordance with the specifications, designs, drawing and instructions. The conditions of the memorandum included that the assessee was to provide and fix special type steel windows as per approved drawing, the details whereof were given in the list. The cost thereof was quoted at Rs. 23,480. The time for the work from the date of written order was six months. Then it proceeds to detail the four types of windows that were to be provided and against each unit a consolidated price hits been quoted. In the schedule it is repeated that the assessee was to provide and fix 'special type steel windows' as detailed therein. The work was to be executed as per the specifications attached thereto and it was to be completed within six months from the date of the award of the work. The windows items Nos. 1 and 2 were to be fabricated out of the standard sections while windows--items Nos. 3 and 4 were to be fabricated out of medium universal sections as per drawing which was available in the office. The windows were to be fitted with rawl plugs in cut stone works. They were to be of plain glazed glass and the glazing was to be done by a particular process. The specifications provided that the windows, doors, and sashes were to be made from mild rolled steel sections, straightened and free of hammer marks or other defects. They were to be fabricated in a particular manner, five conditions whereof are stated in the specifications. The fittings were indicated and the nature of the finish was also specified. The confirmation order repeated practically the specifications and so far as the delivery was concerned it was stated that work was to be completed in six months that is by 8-12-1957. The assessee notified what tolerance was to be kept ready by the Public Works Department for the purposes of fixing the windows in the building, and that there ought to be no changes in the dimensions. The Government was to provide for the electric current for drilling at site. The invoice gives the total price as Rs. 23,480.
21. This contract if broken into components admits of three stages. The first being that the assessee was to obtain and provide steel of specified quality. The second part consisted in fabricating the doors, windows and sashes by employment of skilled and unskilled labour in accordance with the specifications shown in the tender, and affirmed by the work order and the third stage consisted of in carrying to the site and fixing these fabricated articles to the building site where the employer was to fix this fabricated material into masonry construction in accordance with the terms of the contract. It is after the completion of this stage that the property in the fabricated windows which had become the part of the building construction that the property in the goods passed. In our opinion these circumstances go to show that the contract of the assessee partakes of the nature of a building contract. Hudson's Buildings and Engineering Contracts, 8th Edition (1959) at page 36 describes building contracts in the following terms:
'Building and engineering contracts are those agreements under which a person (in this book referred to as 'the builder' or 'the contractor') undertakes to execute building or civil engineering works for another person (in this book referred to as 'the employer' or 'the building owner'). The extent of the works to be executed may vary from the construction or repair of a small structure to the erection of large multiple buildings and housing estates and engineering works of every description and magnitude.'
The assesses contract before us was a part of building contract and the assesses was bound to complete the works in its entirety before it was entitled to any payment. This is a vital condition and when read with others viz. that the price was all-inclusive without any indication of the component parts and the property was to pass after it had acquired the characteristics of immovable property in the light of the observations of Gannon Dunkerley's case, 1958-9 STC 353 : (AIR 1958 SC 560) the transactions could not be described as a sale of movable property on which sales tax was payable.
22. Even if it was to be treated as a contract wherein fabricated units were to be affixed into the building of another the case would appear to be of the nature of Carl Still's case, 1961-12 STC 449: (AIR 1961 SC, 1615) and Voltas's case, 1963-14 STC 448 (Mad). The price payable was not for unit as such but the contract included within its compass the engineering skill to be employed in fabrication and fixation of these units for an all inclusive price. It was, therefore, an indivisible contract not liable to sales tax.
23. For all these reasons our answer to the question therefore, is that on the proper interpretation of the contract between the applicant and the Executive Engineer, Central Public Works Department, Ajmer regarding the providing and fixing of the steel windows to the Accountant General's Office is an indivisible contract of work and not of sale. It is not liable to sales tax.
24. In the circumstances of the ease, there will be no order as to costs for this reference.