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The Rajputana Cotton Press Public Limited Company Vs. the State of Rajasthan and ors. - Court Judgment

LegalCrystal Citation
SubjectSales Tax
CourtRajasthan High Court
Decided On
Case NumberD.B. Civil Writ Petition Nos. 315 of 1969, 666, 667 and 845 of 1972
Judge
Reported in[1979]44STC373(Raj)
AppellantThe Rajputana Cotton Press Public Limited Company
RespondentThe State of Rajasthan and ors.
Appellant Advocate B.P. Agarwal, Adv.
Respondent Advocate B.K. Pathak, Additional Government Adv.
DispositionPetition allowed
Cases Referred and State of West Bengal v. North Adjai Coal Co.
Excerpt:
- - ), their lordships of the supreme court held that the expression 'sale of goods' was a term of well-recognised legal import in the general law relating to the sale of goods......relating to the sale of goods and completion of such agreement by passing of the title in the very goods contracted to be sold.8. the same view was also taken by their lordships of the supreme court in ram singh and sons engineering works v. commissioner of sales tax, uttar pradesh a.i.r. 1979 s.c. 545, where there was a contract for fabrication and erection of a 3-motion electrical overhead travelling crane and it was held that it was a contract for work and labour and not a contract for sale. their lordships laid down the test in the following words: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.....
Judgment:

Dwarka Prasad, J.

1. The parties in these four writ petitions are the same and as common questions of law and fact arise in these cases, it would be convenient to dispose them of by a common order.

2. The petitioner, M/s. Rajputana Cotton Press Public Limited Company, Beawar (hereinafter referred to as 'the company'), is a public limited company engaged in the operation of pressing and baling cotton and wool with the aid of hessian cloth and iron hoops. The company was registered as a dealer under the Rajasthan Sales Tax Act, 1954 (hereinafter referred to as 'the Act'), and was assessed to tax under the Act, for the assessment years 1957-58, 1958-59, 1959-60 and 1960-61 by the Assistant Sales Tax Officer, Beawar (hereinafter referred to as 'the assessing authority'). The assessing authority held the view that the packing material, namely, the hessian cloth and iron hoops, used for wrapping wool and cotton by the company, was part of the goods sold and that the pressing and baling charges recovered by the company from its customers included not only the labour charges for the work done but also the price of the packing materials, which was estimated by the assessing authority at Rs. 8 per bale. He, therefore, proceeded to charge sales tax on the estimated price of the packing materials. The order of the assessing authority was challenged by the company before the Deputy Commissioner, Commercial Taxes (Appeals), Ajmer and Kota Divisions, Jaipur, who, by a common order, accepted the appeals filed by the company for all the aforesaid years. The appellate authority was of the view that the transfer of the packing materials did not constitute a sale of property but formed an integral part of the contract for work and, as such, sales tax could not be charged on the estimated price of the goods used by the company as packing materials. The State of Rajasthan preferred revision petitions before the Board of Revenue, which were accepted, and the Board, by its order dated 11th June, 1968, set aside the orders passed by the appellate authority and restored the orders passed by the assessing authority. Thereafter, the company preferred rectification applications under Section 17 of the Act before the Board of Revenue, which were dismissed by the order dated 25th September, 1968. The company then came up before this Court under Article 226 of the Constitution of India. Initially, the company filed one consolidated writ petition, which is D.B. Civil Writ Petition No. 315 of 1969, but when an objection was taken, the company filed separate writ petitions for each distinct assessment year.

3. The principal argument advanced by Mr. Agarwal, the Learned Counsel for the company, in these writ petitions, is that the use of the packing materials formed an integral part of the contract of work and there was no sale of materials or goods by the company to its customers and, as such, sales tax could not be charged from it on the estimated price of the packing materials, consisting of hessian cloth and iron hoops. According to the Learned Counsel for the company, the wool or cotton could not be kept in the pressed condition unless the same is wrapped in the hessian cloth, which, in turn, was kept in position by the use of iron hoops.

4. Mr. Pathak, appearing for the assessing authority and the State of Rajasthan, contested the submission of the Learned Counsel for the company and urged that as the price of the packing materials constituted substantial portion of the charges collected by the company from its customers, it must be held that the packing materials were sold by the company to its customers and, as such, the cost of the packing materials was liable to payment of sales tax under the Act.

5. In our view, the submission of the Learned Counsel for the company in these cases deserves to be upheld on the basis of the principles enunciated In a long series of decisions of this Court and the Supreme Court of India. In Nenu Ram v. State of Rajasthan 1967 R.L.W. 39, a Division Bench of this Court held in a case, where a contract for supplying and fixing wooden windows and doors was entered into, that there was no sale of goods within the meaning of the Act, as the contract was not merely to make certain materials but to fix them and until they were so fixed, the property in the goods would not pass to the buyer. It was also held in the aforesaid case that, after the windows and doors were fixed, they became an accretion to the building and the ownership thereof vested in the owner and as such also there was no sale of goods. The decision of this Court in the aforesaid case was upheld by their Lordships of the Supreme Court in State of Rajasthan v. Nenu Ram [1970] 26 S.T.C. 268 (S.C.) and their Lordships held that the contract for supply and fixing of wooden windows and doors was one and indivisible and goods were not sold as movables and the property was to pass only when the wooden windows and doors were fixed at the site. Their Lordships also held that the amount charged by the contractor for the supplying and fixing of the wooden windows and doors at the site was not liable to payment of sales tax. Their Lordships referred to their earlier decision in State of Rajasthan v. Man Industrial Corporation Ltd. [1969] 24 S.T.C. 349 (S.C.), wherein also a similar view was taken. In that case, their Lordships laid down the following tests:

The test in each case is whether the object of the party sought to be taxed is that the chattel as chattel passes to the other party and the services rendered in connection with the installation are under a separate contract or are incidental to the execution of the contract of sale.

6. The same view was again taken by this Court in the case of Mahalaxmi Cotton Ginning and Pressing Factory I.L.R. (1969) 19 Raj. 246 decided along with the case of Mewar Sugar Mills Limited v. State of Rajasthan I.L.R. (1969) 19 Raj. 246, where a similar question, as has been raised before us, was raised before another Division Bench of this Court. Mahalaxmi Cotton Ginning and Pressing Factory was carrying on the business of pressing raw cotton and the Assistant Commissioner, Excise and Taxation, Bhilwara, who assessed the aforesaid factory in respect of sales tax, held it liable to sales tax on the value of the gunny bags and iron hoops used by the assessee for packing the cotton bales. It was held by this Court in the aforesaid case:

The work of packing is not only incidental to the work of pressing, but under the statute it is obligatory. Under these circumstances, in our opinion, packing is an integral part of pressing of cotton undertaken by the factory. It cannot refuse to do so. Nor can the constituent of the factory who has brought the cotton to it for pressing claim that the factory should not pack the pressed bale. The law regulates the method and the manner in which the job of pressing is to be performed and when packing has been made incumbent by law on the part of the factory, it becomes integral part of the job undertaken by it to be performed. In order that a process may become an integral part of the work undertaken to be performed, it is not necessary that the materials used by the person who has undertaken the performance of that work should be transformed in any other material.

7. This Court further held that there was no sale of the packing material involved in the work of pressing and packing cotton bales. In Commissioner of Sales Tax, Madhya Pradesh v. Purshottam Premji [1970] 26 S.T.C. 38 (S.C.), it was held by their Lordships of the Supreme Court that mere transfer of property in goods used in the performance of a contract is not sufficient to constitute a sale thereof, but in order that the transaction may be a 'sale', there must be an agreement, either express or implied, relating to the sale of goods and completion of such agreement by passing of the title in the very goods contracted to be sold.

8. The same view was also taken by their Lordships of the Supreme Court in Ram Singh and Sons Engineering Works v. Commissioner of Sales Tax, Uttar Pradesh A.I.R. 1979 S.C. 545, where there was a contract for fabrication and erection of a 3-motion electrical overhead travelling crane and it was held that it was a contract for work and labour and not a contract for sale. Their Lordships laid down the test in the following words:

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.

9. Their Lordships of the Supreme Court also quoted with approval the following observations made by them earlier in Commissioner of Sales Tax, Madhya Pradesh v. Purshottam Premji [1970] 26 S.T.C. 38 (S.C.):

The primary difference between a contract for 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.... 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.

10. If the above-mentioned tests, laid down by their Lordships of the Supreme Court and which have been recognised and followed by a number of decisions in this country, are applied to the facts of the present case, it is clear beyond doubt that no sale of the packing materials was intended nor there was any contract express or implied for the sale of the packing materials between the parties. But the transfer of the packing materials by the company to its customers formed an integral part of the contract for work of pressing wool or cotton, which was undertaken by the company. We, therefore, hold that, in the present case, there was a service or works contract which was performed by the company and as no sale of the goods was involved, the company was not liable to make payment of sales tax on the estimated cost of the packing materials, which constituted an essential or necessary component of the work of pressing and baling performed by the company.

11. In State of Madras v. Gannon Dunkerley & Company (Madras) Limited [1958] 9 S.T.C. 353 (S.C.), their Lordships of the Supreme Court held that the expression 'sale of goods' was a term of well-recognised legal import in the general law relating to the sale of goods. In order to constitute a sale, it is necessary that there should be an agreement between the parties, express or implied, for the purpose of transferring title to the goods, then it must be supported by money consideration and, further, as a result of the transaction, property must actually pass in the goods from the seller to the buyer. Unless all these elements are present there can be no sale. Merely, in case title to the goods passes from the seller to the buyer but not as a result of any contract between the parties, either express or implied, there is no sale. So also, if the consideration for the transfer is not money but other valuable consideration, then the transaction may constitute an exchange or barter but not a sale. Similarly, if under the contract of sale, title to the goods does not pass to the buyer, then also there is no complete sale, but there is only an agreement to sell. Thus, one fundamental fact has to be borne in mind, namely, that mere on the passing of title to the goods, either as an integral part or independent of the goods, there cannot be any necessary inference that the goods were agreed to be sold and the price was liable to payment of sales tax. In order that there should be a sale of goods, which is liable to sales tax, as part of the contract for work under a statute enacted by the State Legislature, there must be a contract in which there is not merely transfer of title to the goods as an incident of the contract, but there must also be a contract, either express or implied, for the sale of the very goods and the parties must have intended to sell them for money consideration. Thus, there must be independent contracts or at least independent terms in the contract for work and for sale of goods by one party to the other, for money consideration, in order to constitute a sale of goods on which sales tax could be levied.

12. In Government of Andhra Pradesh v. Guntur Tobaccos Limited [1965] 16 S.T.C. 240 (S.C.), Shah, J., speaking for the majority of the Supreme Court, observed that a contract for work, in the execution of which goods are used, may take any one of the three forms, namely:

(a) the contract may be for work to be done for remuneration and for supply of materials used in the execution of the work for a price;

(b) it may be a contract for work, in which the use of materials is accessory or incidental to the execution of the work; and

(c) it may be a contract for work and the use or supply of materials, though not accessory to the execution of the contract, is voluntary or gratuitous.

13. In the first class of cases mentioned above, there is a composite contract for the work done and for sale of goods, whereas in the second category of cases there is only a contract for execution of work not involving sale of goods, while in the last class of cases there is no sale of materials and although the property passes in the goods, the same does not pass for a price. The case before us obviously falls within the second class of cases, enumerated by Shah, J., in the Guntur Tobaccos Limited case [1965] 16 S.T.C. 240 (S.C.), inasmuch as the company undertakes the work of pressing of cotton and wool and the use of hessian cloth and the iron hoops, by way of packing materials, is merely accessory or incidental to the work of pressing and baling. There is no express or implied contract for payment of price by the buyer, in respect of hessian cloth or iron hoops, which constitute the packing material and without the use of which pressed cotton or wool cannot be kept in the shape of bales. Thus, in the case of the company, there is only a contract for the execution of work not involving any sale of goods and hence no sales tax is chargeable from the company for the transfer of title in the goods used as the packing materials.

14. The Learned Counsel for the assessing authority cited certain cases before us, such as Nimar Cotton Press v. Sales Tax Officer, Nimar Circle, Khandwa [1961] 12 S.T.C. 313 (F.B.), Nimar Cotton Press Factory v. Commissioner of Sales Tax, Madhya Pradesh, Indore [1968] 21 S.T.C. 505, and Vimalchand Prakashchand, Sarafa, Ujjain v. Commissioner of Sales Tax, Madhya Pradesh [1968] 22 S.T.C. 22, which were decided by the Madhya Pradesh High Court. These cases have been duly considered by this Court in the Mewar Sugar Mills' case I.L.R. (1969) 19 Raj. 246 and were dissented from, while holding that the packing materials are an integral part of the pressing and baling of cotton and the process of packing is incidental to the process of pressing. We are in respectful agreement with the view taken by this Court in the Mahalaxmi Cotton Ginning and Pressing Factory's case I.L.R. (1969) 19 Raj. 246 decided along with the Mewar Sugar Mills' case I.L.R. (1969) 19 Raj. 246 and we do not consider it necessary to deal again with the aforesaid cases decided by the Madhya Pradesh High Court cited above.

15. Another argument advanced by the learned Additional Government Advocate is that the company should have taken recourse to the ordinary remedy of filing an application before the Board of Revenue for making a reference to this Court and that this Court should have considered the matter only after the case would have been stated by the Board of Revenue by making a reference to this Court. His submission is that the company should not be allowed to by-pass and ignore the legal remedies provided for under the Rajasthan Sales Tax Act. However, this Court in the Mahalaxmi Cotton Ginning and Pressing Factory's case I.L.R. (1969) 19 Raj. 246 decided along with the Mewar Sugar Mills' case I.L.R. (1969) 19 Raj. 246 laid down that the use of iron hoops and hessian cloth for wrapping the pressed cotton bales in a pressing factory is an integral part of pressing cotton and the process of packing is incidental to the process of pressing and, as such, the transfer of title in the packing materials does not amount to a sale thereof, and its turnover is not taxable under the Act. In our view, after the aforesaid decision was given by this Court, the law has been set at rest so far as this Court is concerned and it was no longer necessary for the company thereafter to approach the Board of Revenue for getting the very same question referred again for obtaining the opinion of this Court, when this Court has already expressed its opinion on the very same question in a similar case. Mr. Pathak relied upon a decision of this Court in Akbarali Amanatali v. Assistant Commercial Taxes Officer 1976 W.L.N. 1815 in support of his submission. But, in that case, there was no question of absence of jurisdiction in the Commercial Taxes Officer for initiating proceedings for assessment of sales tax. It may be noted that in the Akbarali's case 1976 W.L.N. 1815, the decision of their Lordships of the Supreme Court in Calcutta Discount Company Ltd. v. Income-tax Officer [1961] 41 I.T.R. 191 (S.C.) and other similar decisions were distinguished on the ground that, in those cases, the assessee approached the High Court after the service of the notice of reassessment upon him on the ground that the notice itself was invalid. In the present case, the company's contention is that there was no 'sale' at all involved in the transaction of pressing and baling of cotton or wool by it and the Sales Tax Officer had no jurisdiction to assess sales tax upon the company under the Rajasthan Sales Tax Act, 1954. One more reason why we are not inclined to dismiss these writ petitions on the ground of alternative remedy is that these writ petitions were duly admitted and they have remained pending in this Court for a long number of years. Moreover, we have also heard the Learned Counsel for the parties on the merits of the case at length and at this stage we do not think that we would be justified in refusing to grant relief to the company merely on the ground of the existence of an alternative remedy. We may also rely, in support of our view, upon the decision of a Bench of this Court in Karam Chand Thappar v. Sales Tax Officer, Jaipur 1961 R.L.W. 420, where Sarjoo Prosad, C.J., as he then was, observed as under:

The existence of an alternative remedy is no bar to a party who comes to this Court with an allegation that its fundamental right has been infringed without the authority of law. In an appropriate case, it may be the duty of the superior court to issue a writ of certiorari to correct the errors of an inferior court or tribunal called upon to exercise judicial or quasi-judicial functions and not to relegate the petitioner to other legal remedies available to him. If it is held that the Sales Tax Act itself does not authorise any such imposition and the law is not applicable to the circumstances of the case, the provision of a remedy by way of appeal under the Act cannot stand as a plea in bar.

16. In L. Hirday Narain v. Income-tax Officer, Bareilly [1970] 78 I.T.R. 26 (S.C.), and State of West Bengal v. North Adjai Coal Co. (1971) 1 S.C.C. 309, it was held by their Lordships of the Supreme Court that the High Court having entertained a writ petition and given a hearing on merits, it should not reject the writ petition on the ground that the petitioner has not availed of the statutory remedy. We are, therefore, not inclined to accept the contention of the learned Additional Government Advocate that these writ petitions should be dismissed merely on the ground of existence of an alternative remedy.

17. In the result, we hold that the goods used as the packing materials by the company for packing cotton or wool, after the same was pressed, namely, hessian cloth and iron hoops, are not chargeable to sales tax under the Rajasthan Sales Tax Act, 1954, because there was no transaction of sale of such materials in the circumstances of these cases, as has been explained above. We, therefore, allow all the four writ petitions and quash the orders of assessment passed by the Assistant Sales Tax Officer, Beawar, and also the subsequent orders passed by the Board of Revenue for Rajasthan at Ajmer in these matters. However, the parties are left to bear their own costs.


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