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Mckenzies Limited Vs. Board of Revenue, Commercial Taxes - Court Judgment

LegalCrystal Citation
SubjectSales Tax
CourtChennai High Court
Decided On
Case Number Tax Case Nos. 101 and 102 of 1964
Judge
Reported in[1968]21STC279(Mad)
AppellantMckenzies Limited
RespondentBoard of Revenue, Commercial Taxes
Appellant Advocate G.V.V. Gopalaswami, Adv.
Respondent Advocate K. Venkataswami,Adv. for ; the Assistant Government Pleader
Cases ReferredState of Gujarat v. Kailash Engineering Co.
Excerpt:
- - there may be other indications like the whole contract being treated as one for labour and not for supply of finished goods......the question in this case is whether the transactions in dispute are sales of goods or constitute 'works contracts' not chargeable to tax. the board of revenue in exercise of its suo motu powers of revision has disagreed with the appellate assistant commissioner of commercial taxes and held that the turnovers in dispute for the assessment years 1955-56 and 1956-57 relate to sales of goods. on that view they were brought to charge and exemption granted was set aside.2. whether a given transaction is a works contract or a sale of goods is a mixed question of law and fact, and will have to be answered invariably in relation to the terms of a particular contract. the test will be the intention of the parties as gathered from the entirety of the contract, whether on a fair reading of the.....
Judgment:
ORDER

Veeraswami, J.

1. The question in this case is whether the transactions in dispute are sales of goods or constitute 'works contracts' not chargeable to tax. The Board of Revenue in exercise of its suo motu powers of revision has disagreed with the Appellate Assistant Commissioner of Commercial Taxes and held that the turnovers in dispute for the assessment years 1955-56 and 1956-57 relate to sales of goods. On that view they were brought to charge and exemption granted was set aside.

2. Whether a given transaction is a works contract or a sale of goods is a mixed question of law and fact, and will have to be answered invariably in relation to the terms of a particular contract. The test will be the intention of the parties as gathered from the entirety of the contract, whether on a fair reading of the contract the parties agreed to sell and purchase a finished or a completed article or commodity or meant to treat the transaction as one for labour to be bestowed on an article or commodity serving as the base. It may also be useful and necessary to keep in mind whether the transaction relates to a movable or an immovable. In the case of the latter the question will be whether the entire construction or product in the nature of the immovable property is meant to be sold or where construction or works are to be carried out on an immovable property, the property in materials by what is done on or to the immovable property passes by affixture in the process of the works. In other words, if the contract is a composite one, it is to be found out whether it can be split up and a part of it can be regarded as an agreement to sell specific goods incorporated to immovable property. The same test may also to some extent apply to works relating to a movable. If, for instance, a party supplies chassis with a direction to the other under a contract to build a body thereon and the property in the body built up passes during the process of the work and not as part of the finished product, this will be indicative of the contract being a works contract. There may be other indications like the whole contract being treated as one for labour and not for supply of finished goods. Though chassis may be supplied by one party to the other, they may agree between themselves that chassis so supplied should be on account of the person who does the body-building. Perhaps it will be right to say that not one test by itself may be conclusive and a conclusion will have to be arrived at by reference to the terms of the contract and one or more of the tests, the object being in every case to find out the true intention of the parties, as to whether to treat the transaction as a sale of goods or as a contract for works. Decided cases will have to be reconciled only on that basis. For, in each case, the Court is concerned with the terms of the particular contract it is called upon to interpret.

3. In T.C. No. 101 of 1964 the terms of the contract to build bus bodies on chassis supplied by Government Department are identical with those which the Supreme Court considered in Mckenzies Ltd. v. State of Maharashtra [1965] 16 S.T.C. 518. In fact the very dealer before us was also the dealer in that case. The Supreme Court, agreeing with the Bombay High Court, was of opinion that the contract was for sale of goods. In coming to that conclusion the Supreme Court said :

Reading the contract as a whole, we are in agreement with the High Court of Bombay that it is a contract for the sale of goods and not a contract for work and labour. It will be noticed that the bodies are spoken as composite bodies or as units throughout the contract and property in the bodies passes to the Government on delivery, and when the property passes the bodies are goods. The fact that a progress report had to be given only ensured prompt delivery. There is no clause in the agreement which militates against the contract being a contract for the sale of goods.

4. Though learned counsel for the assessee tried to convince us that this is not the effect of the contract, we do not think that it is open to us to accept that argument, in view of Mckenzies Ltd. v. The State of Maharashtra [1965] 16 S.T.C. 518 which related to identical terms of the contract and the identical dealer too.

5. The result is T.C. No. 101 of 1964 fails and is dismissed with costs. Counsel's fee Rs. 100.

6. T.C. No. 102 of 1964 covers two items of turnover, (1) relating to furnishing of M. G. Shells, a sum of Rs. 4,17,780 and (2) relating to building of body on chassis (lorry) taxable at 9 pies in the rupee, a total of Rs. 4,09,887. So far as the second item is concerned, it is not different from T.C. No. 101 of 1964. The Board of Revenue was, therefore, right in bringing the second item of turnover to charge.

7. As regards the first item, it seems to us, on a reading of the entirety of the contract, that it is one for carrying out works and not for sale of goods. We must confess there is some similarity between the contract relating to building of railway coaches on chassis supplied by the Department and the other type of contract involved in T.C. No. 101 of 1964. But we think that there is an essential difference between the two types of contracts, namely, that in the case of railway coach building, the property in the materials used in coach building seems to pass during the progress of the work and not necessarily at the end of it and at the time of delivery of the coaches. No doubt payment is made at so much per unit. But we find that at least part of the materials under the contract are supplied by the Department which go into the coach building. The coaches built up will have to be in accordance with the drawings and specifications. The chassis for coach building are also supplied by the Department. Another factor which we bear in mind in coming to that conclusion is that the railway coaches can hardly have a general market and they are specially made to order according to the terms and specifications in the contract. We do not think that this factor by itself may justify the conclusion that the transaction is a sale of goods. But that taken with the other terms, particluarly the fact which we infer from the contract that property in the materials used in the body-building passes during the progress of the work, inclines us to the view that it is a works contract. The terms of the contact before us were more or less similar to those in State of Gujarat v. Kailash Engineering Co. (P.) Ltd. [1967] 19 S.T.C. 13 in which the Supreme Court held that the contract was a works contract.

8. T.C. No. 102 of 1964 is allowed only in respect of the first item of turnover, namely Rs. 4,17,780. The petitioner is entitled to his costs. Counsel's fee Rs. 100.


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